Thurlow, J (concurred in by Mackay, DJ):
1 This is an application under section 28 of the Federal Court Act to review and set aside the decision of the Tax Review Board on an application to it under subsection 174(1) of the Income Tax Act. The question of which a determination was sought was:
... whether the whole or any part, and, if part then what part, of the sum of $1,806.54 was paid by James C Weaver and received by Freda J Weaver in 1972, pursuant to a written agreement, as alimony or other allowance payable on a periodic basis for the maintenance of Freda J Weaver, children of the marriage, or both Freda J Weaver and children of the marriage, from whom James C Weaver was living apart and separated pursuant to a written separation agreement and to whom he was required to make the payments at the time the payments were made and throughout the remainder of 1972.
2 The need for a decision of this question arises on the provisions of paragraphs 56(1)(b) and 60(b) of the Income Tax Act which read as follows:
56. (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,(b) any amount received by the taxpayer in the year, pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written agreement, as alimony or other 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, and was separated pursuant to a divorce, judicial separation or written separation agreement from, the spouse or former spouse required to make the payment at the time the payment was received and throughout the remainder of the year.
60. There may be deducted in computing a taxpayer's income for a taxation year such of the following amounts as are applicable:(b) an amount paid by the taxpayer in the year, pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written agreement, as alimony or other 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, and was separated pursuant to a divorce, judicial separation or written separation agreement from, his spouse or former spouse to whom he was required to make the payment at the time the payment was made and throughout the remainder of the year;
3 These provisions are complementary and it seems clear that under them what must be brought into the computation of the income of a receiving spouse is equal to what may be deducted by the paying spouse and vice versa. What appears to be contemplated as the foundation for their application is that the spouses must be living apart at the time of any payment to which the statutory provisions are to apply and must continue to live apart for the remainder of the taxation year. That is what the wording at the end of each of the two provisions appears to me to mean.
4 It is not in dispute that the respondents lived apart throughout 1972 and that the amount of $1,806.54 referred to in the question was the total of several amounts paid by the respondent, James C Weaver, in the taxation year, to several creditors for heating, hydro, water, taxes and mortgage payments pursuant to paragraph 3 of a separation agreement between him and his wife, the respondent, Freda J Weaver. The agreement provided inter alia as follows:
3. The wife shall be entitled to reside in the marital home, owned jointly by the parties hereto, being 3714 Ellengale Drive, Erindale Woodlands, in the Town of Mississauga, and all usual expenses relating to such house shall be paid by the Husband, including heating, hydro, water, necessary repairs, taxes and mortgage payments; PROVIDED that when the youngest child has attained the age of sixteen (16) years the parties agree that the house shall be sold and the net proceeds, after payment of all legal fees and real estate commission, shall be divided equally between them.
4. The Husband shall pay to the Wife, in addition to the sum set out in paragraph (3) above, the sum of One Hundred and Fifty ($150.00) Dollars per month for the support of herself and the children of the marriage; on each child attaining the age of sixteen (16) years, or ceasing to attend a recognized school or university, whichever occurs first, such sum will be reduced by Twenty-Five Dollars ($25.00) with respect to each child; the balance, in the amount of One Hundred Dollars ($100.00) per month, shall be paid to the Wife until the youngest child attains the age of sixteen (16) years, at which time all payments to the Wife shall cease. All payments for the benefit of the Wife, whether made directly to her or not, made pursuant to this agreement shall be deemed to be made in satisfaction of a judgment for alimony as long as the marriage subsists or in satisfaction of a judgment for maintenance in the event that the marriage between the parties hereto is dissolved or annulled. Subject to this agreement, when the Husband is not in default, the Wife agrees to accept payments made with respect to her under it in full satisfaction of and hereby releases the Husband from all claims for alimony, interim alimony, maintenance and support or any of them, whether arising under statute or otherwise. The Wife covenants and agrees that this agreement may be pleaded by the Husband as and shall be a good defence to and estoppel against any claim whatsoever that may be made by the Wife for alimony, interim alimony, maintenance and support, or any of them, whether arising under statute or otherwise.
5 The Tax Review Board admitted certain documentary evidence and after hearing submissions by counsel for the Minister and for both spouses answered the question in the affirmative. On the application to this Court under section 28 the respondent, Freda J Weaver was not represented but no question was raised as to either the propriety of proceedings under section 28 of the Federal Court Act to review the Board's decision or the right of the Attorney General of Canada to attack the determination made by the Board. The question that arises on the review application is whether the Board erred in law in reaching its conclusion.
6 In Pascoe v The Queen, [1975] C.T.C. 656, a division of this Court considered the deductibility under paragraph 11(1)(l) of the former Income Tax Act of amounts paid by a husband for medical and educational expenses of children of the marriage. The amounts required to pay such expenses were payable by the husband to the wife by the combined effect of a separation agreement and a subsequent decree in a divorce action. Pratte, J speaking for the Court said:
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)(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.
7 While this interpretation of “other allowance” in its context may at first sight seem narrow and restrictive it appears to me to leave scope for the application of that expression since “alimony”, as I understand the term, refers only to an allowance paid under a decree for the maintenance of a wife whereas the statutory provisions are plainly intended to apply as well to allowances of the same nature for the maintenance of children and, conceivably, of a husband, and whether under a decree or pursuant to the terms of an agreement for separation or even after the parties have ceased to be husband and wife.
8 Moreover, the Court's interpretation appears to me to make clear what is to be regarded as embraced by the wording of the statute—something that cannot be said for the wording itself—and, as parties to whom it may have application have it within their power to make or change their arrangements having regard to the consequences that will flow from the statutory provisions, certainty as to their application is of prime importance.
9 In my opinion, the interpretation of “allowance” adopted by the Court in the Pascoe case should be applied and in the present case, in my view, it leads inevitably to the conclusion that none of the amount of $1,806.54 here in question was paid or received “as alimony or other allowance” within the meaning of paragraphs 56(1)(b) and 60(b) of the Income Tax Act.
10 I would set aside the decision of the Tax Review Board and refer the matter back to the Board for determination on that basis.
Urie, J (dissenting in part):
12 This is an application under section 28 of the Federal Court Act to review and set aside a decision of the Tax Review Board dated June 4, 1975, determining the question set forth in an application made by the Minister of National Revenue pursuant to section 174 of the Income Tax Act which question reads as follows:
whether the whole or any part, and if part then what part, of the sum of $1,806.54 was paid by James C Weaver and received by Freda J Weaver in 1972, pursuant to a written agreement, as alimony or other allowance payable on a periodic basis for the maintenance of Freda J Weaver, children of the marriage, or both Freda J Weaver and children of the marriage, from whom James C Weaver was living apart and separated pursuant to a written separation agreement and to whom he was required to make the payments at the time the payments were made throughout the remainder of 1972.
13 At the beginning of his argument, counsel for the applicant was asked by the Court to explain why he brought a section 28 application in respect of the decision attacked rather than what would, initially, appear to be the normal course of appealing the decision of the Tax Review Board to the Trial Division of the Federal Court.
14 Since we were advised that this is the first application for review of a Tax Review Board decision made under section 174, it would appear desirable to carefully examine the various provisions conferring jurisdiction.
15 The following are the relevant sections of the Income Tax Act:
173. (1) Where the Minister and a taxpayer agree in writing that a question of law, fact or mixed law and fact arising under this Act should be determined by the Federal Court, that question shall be determined by the Court pursuant to subsection 17(3) of the Federal Court Act.
174. (1) Where the Minister is of the opinion that a question of law, fact or mixed law and fact arising out of one and the same transaction or occurrence or series of transactions or occurrences is common to assessments in respect of two or more taxpayers, he may apply to the Tax Review Board or the Federal Court—Trial Division for a determination of the question.
(3) Where the Tax Review Board or the Federal Court—Trial Division is satisfied that a determination of the question set forth in an application under this section will affect assessments in respect of two or more taxpayers who have been served with a copy of the application and who are named in an order of the Board or the Court, as the case may be, pursuant to this subsection, it may(a) if none of the taxpayers so named has appealed from such an assessment, proceed to determine the question in such manner as it considers appropriate, or
(b) if one or more of the taxpayers so named has or have appealed, make such order joining a party or parties to that of those appeals as it considers appropriate.
(4) Where a question set forth in an application under this section is determined by the Tax Review Board or the Federal Court—Trial Division, the determination thereof is, subject to any appeal therefrom in accordance with the Federal Court Act, final and conclusive for the purposes of any assessments of tax payable by the taxpayers named by it pursuant to subsection (3).
16 Quite clearly a decision on a reference to the Trial Division pursuant to subsection 173(1) is appealable to this court by virtue of section 27 of the Federal Court Act. Equally, clearly, in my view, a determination of a question made by the Trial Division on an application by the Minister of National Revenue in the circumstances envisaged by subsections (1) and (3) of section 174, may be the subject of an appeal to this Court, because by the terms of subsection (4) that determination is final and conclusive “subject to any appeal therefrom in accordance with the Federal Court Act”. The right to appeal granted by that Act again is granted by section 27.
17 However, the only right of appeal from a decision of the Tax Review Board is not provided by the Federal Court Act but by section 172 of the Income Tax Act, that appeal being to the Trial Division by virtue of section 24 of the Federal Court Act. The decision of the Tax Review Board so appealable is one made pursuant to section 169 of the Income Tax Act reading as follows:
169. Where a taxpayer has served notice of objection to an assessment under section 165, he may appeal to the Tax Review Board to have the assessment vacated or varied after either(a) the Minister has confirmed the assessment or reassessed, or
(b) 180 days have elapsed after service of the notice of objection and the Minister has not notified the taxpayer that he has vacated or confirmed the assessment or reassessed;
18 It will be seen that such an appeal is one from an assessment made by the Minister. A decision of the Tax Review Board made pursuant to section 174 is not one as the result of an appeal from an assessment. As a matter of fact, by subsection 174(3), the Board may only make the determination applied for if none of the taxpayers affected has appealed from their assessments.
19 It thus seems clear that no appeal is provided either under the Income Tax Act or under the Federal Court Act from a determination made by the Tax Review Board pursuant to section 174 of the Income Tax Act. This conclusion leads to the anomalous result that if the Minister applies to the Trial Division for a determination of a question of law or of mixed law and fact under section 174, such determination may be appealed to this Court with the whole of the proceedings open to the scrutiny of the Court and judgment may be given in any of the ways permitted by paragraph 52(b) of the Federal Court Act. On the other hand, if he chooses to refer the matter for determination by the Tax Review Board, the only redress available to a dissatisfied party or the Attorney General is by way of a section 28 application on a question of law only and with the limited powers of disposition of the application provided by paragraph 52(d) of the Act.
20 In my opinion, therefore, the determination here under review was properly brought as an application to review and set aside under section 28.
21 I turn now to the merits of the application. A brief review of the facts, none of which appear to be in dispute, is necessary to bring the problem into focus.
22 The respondents are husband and wife who entered into a separation agreement dated May 28, 1971 (hereinafter referred to as “the agreement”). The relevant paragraphs thereof read as follows:
3. The Wife shall be entitled to reside in the marital home, owned jointly by the parties hereto, being 3714 Ellengale Drive, Erindale Woodlands, in the Town of Mississauga, and all usual expenses relating to such house shall be paid by the Husband, including heating, hydro, water, necessary repairs, taxes and mortgage payments; PROVIDED that when the youngest child has attained the age of sixteen (16) years the parties agree that the house shall be sold and the net proceeds, after payment of all legal fees and real estate commission, shall be divided equally between them.
4. The Husband shall pay to the Wife in addition to the sum set out in paragraph (3) above, the sum of One Hundred and Fifty ($150.00) Dollars per month for the support of herself and the children of the marriage; on each child attaining the age of sixteen (16) years, or ceasing to attend a recognized school or university, whichever occurs first, such sum will be reduced by Twenty-five Dollars ($25.00) with respect to each child; the balance, in the amount of One Hundred Dollars ($100.00) per month, shall be paid to the Wife until the youngest child attains the age of sixteen (16) years, at which time all payments to the Wife shall cease. All payments for the benefit of the Wife whether made directly to her or not, made pursuant to this agreement shall be deemed to be made in satisfaction of a judgment for alimony as long as the marriage subsists or in satisfaction of a judgment for maintenance in the event that the marriage between the parties hereto is dissolved or annulled. Subject to this agreement, when the Husband is not in default, the Wife agrees to accept payments made with respect to her under it in full satisfaction of and hereby releases the Husband from all claims for alimony, interim alimony, maintenance and support or any of them, whether arising under statute or otherwise. The Wife covenants and agrees that this agreement may be pleaded by the Husband as and shall be a good defence to and estoppel against any claim whatsoever that may be made by the Wife for alimony, interim alimony, maintenance and support, or any of them whether arising under statute or otherwise.
23 In computing his income for 1972 the respondent James C Weaver (hereinafter referred to as the “husband”) sought to deduct $3,756.54 paid by him pursuant to his obligations under the agreement as alimony. The Minister assessed each of the respondents for income tax in respect of the 1972 taxation year on the basis that only $1,950 was properly deductible as payment of alimony by the respondent husband, the balance of $1,806.54 being neither deductible by him nor included in the computation of the respondent wife's income. The permitted deduction of $1,950 was made up of 26 payments of $75 each paid pursuant to paragraph 4 of the agreement. The balance of $1,806.54 was disallowed on the ground that it was not an amount paid by the husband in 1972 or received by the respondent wife, pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written agreement, as alimony or other allowance payable on a periodic basis for the maintenance of the wife, the children of the marriage or both the wife and children of the marriage as required by paragraph 60(b) of the Act. The payment of $1,950 received by the wife and deductible in the computation of the husband's taxable income, was included in the wife's income by virtue of paragraph 56(1)(b) of the Act. The above mentioned sections read as follows:
56. (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,(b) Any amount received by the taxpayer in the year, pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written agreement, as alimony or other 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, and was separated pursuant to a divorce, judicial separation or written separation agreement from, the spouse or former spouse required to make the payment at the time the payment was received and throughout the remainder of the year.
60. There may be deducted in computing a taxpayer's income for a taxation year such of the following amounts as are applicable:(b) an amount paid by the taxpayer in the year pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written agreement, as alimony or other 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, and was separated pursuant to a divorce, judicial separation or written separation agreement from, his spouse or former spouse to whom he was required to make the payment at the time the payment was made and throughout the remainder of the year.
24 The Tax Review Board answered the question which had been referred to it in the affirmative and held that all the payments claimed by the husband for alimony in 1972, namely, $3,756.54, were deductible pursuant to paragraph 60(b) of the Act. It is this decision we are asked to set aside.
25 Another panel of this Court in the unreported decision of The Queen v. Pascoe argued shortly before the hearing of this application, had for consideration paragraph 11(1)(l) of the old Income Tax Act which is identical with paragraph 60(b) of the present Act. Pratte, J, speaking for the Court, held that
an allowance, in our view is 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 some one or to defray his or her actual expense 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.
26 Counsel for the applicant argued that the only payments made by the husband which met this test were those made pursuant to paragraph 4 of the agreement. Of the remainder of the payments all lacked the characteristic of an allowance in that they were not limited, predetermined sums fixed by the agreement. All were variable in amounts, including the mortgage payments because they were made up, of principal, interest and taxes and the tax portion varied from year to year.
27 Moreover, in his submission, with the exception of the mortgage payments, none were payable at fixed recurring intervals. Even in the case of the mortgage payments he submitted that since neither the amounts nor dates of payment were specified in the agreement, they failed to meet the test of periodicity required by paragraph 60(b).
28 In the Pascoe case, payments made for medical and educational expenses were disallowed as deductions in computing the husband's income. Pratte, J observed that
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.
29 Paragraph 60(b) makes it clear that for amounts to be deductible from the husband's income, they must not only be paid as alimony or other allowance payable on a periodic basis as those words have been interpreted in the Pascoe case but that they should be “for the maintenance of the recipient thereof, children of the marriage ... if he was living apart from, and was separated pursuant to a ... written separation agreement from his spouse ... to whom he was required to make the payment ...”. There is no question in this case that the husband and wife were living separate and apart, that the payments the husband was making were required to be made by the operation of the agreement, and that they were for the maintenance of the wife and children in the sense that they enabled them to continue to live in the former marital home rather than in some other residence for which either the husband or wife would be obliged to pay. However, none of the payments, with the exception of the mortgage payments, meet either the test for an allowance enunciated in the Pascoe case nor the requirement of payment on a periodic basis. The payments were not determined by the agreement to be at fixed, recurring intervals of time. Indeed, the agreement said nothing about when the payments of such expenses must be made. None, except the mortgage payments meet the requirement of regularity of payment that is an essential characteristic of payment on a periodic basis. They were, therefore, in my view, not properly deductible in the tax year in question.
30 On the other hand, the mortgage payments do have this characteristic and I do not believe that the failure to specify in the agreement the amounts of such payments and the dates upon which they were to be paid precludes the application of the section to them. The agreement by implication incorporates the mortgage by reference. The mortgagee's mortgage ledger card, adduced in evidence, verifies that monthly payments were required to be made on the tenth day of each month until the maturity of the mortgage in 1992. Clearly then the payments have the regularity of payment of an allowance that the section contemplates.
31 It was argued that even if this were so, the fact that the tax portion of the monthly payments varies from time to time deprives them of the element of a “limited predetermined sum” that Pratte, J in the Pascoe case said was a characteristic of an allowance. I cannot agree with this submission, because the amount of that portion of the payment was in itself fixed in advance for fixed periods of time, probably a year. As a result, in my view, the requirements of the section are thus met.
32 Two difficulties still must be dealt with before it can be said that the mortgage payments were properly deducted by the respondent. First, the payments were not made to the spouse but directly to the mortgage company. Does this affect their deductibility? In my view, it does not. Reading paragraphs 3 and 4 of the agreement together it is, I think, clear that the expenses required to be paid by the husband were in fact part of overall payments for the benefit of the wife and the children. The opening words of paragraph 4, “The husband shall pay to the wife, in addition to the sum set out in paragraph 3 above”:, indicate that this is so. Moreover, while by paragraph 3 it is mandatory that the husband pay all usual expenses relating to the house, it does not require him to make such payments directly to the creditors to whom moneys are owing but simply to pay them. He could have complied with his obligations under the agreement equally well by paying the mortgage instalments to the wife for transmission to the mortgagee. If this is so he ought not to be deprived of his right to deductibility of the payments or part of them because he elected to make them directly to the mortgagee on her behalf.
33 Second, the marital home was apparently owned by the respondents as joint tenants. The proviso to paragraph 3 of the agreement requires that the house be sold when the youngest child attains the age of 16 years at which time the net proceeds of sale will be divided equally between the respondents. The benefit of the principal portion, then, of each mortgage payment accrues equally to the husband as well as the wife. In my opinion, therefore, only one-half of such principal portion of each of the mortgage payments made by the husband in 1972 should be deductible in computing his taxable income for the year. Insofar as the interest and tax portions of the payments are concerned, since paragraph 3 of the agreement requires the husband to pay taxes and mortgage payments, and since, as I have already indicated, I believe these are part of the wife's allowance, the whole of such portions paid in 1972 should be deductible by the husband.
34 In the result, therefore, I would set aside the decision of the Tax Review Board and refer the matter back to the board for determination on the basis that in addition to the deduction of $1,950 permitted by the assessment in respect of the respondent husband's 1972 taxable income, there be permitted as a deduction of the monthly instalments paid in respect of the mortgage in the taxation year 1972 made up of one-half of the principal portion of each such payment, together with the interest and tax portion thereof.
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