Nickerson v. R., [1997] 3 C.T.C. 2095

Mogan T.C.J.:

1 This is an appeal with respect to the 1993 taxation year in which the Appellant has elected the informal procedure. The issue is whether the Appellant is entitled to a tax credit because he supported his wife for part of 1993. The facts are as follows.

2 At all relevant times, the Appellant was married. He and his wife were living together at the end of 1992 and they had three dependent children. That circumstance continued through the first four months of 1993. On or about May 1, 1993 the Appellant and his wife separated, at which time their three dependent children stayed with the wife. The husband and wife entered into a separation agreement under which the husband paid to the wife for the maintenance of the three dependent children the sum of $300 per child per month, for a total of $900 per month.

3 A further condition of the separation agreement provided that neither spouse had any obligation to pay any amount to the other spouse with respect to the maintenance of the other spouse. Therefore, the Appellant did not have to pay anything to his separated wife for her support or maintenance and she did not have to pay anything to him for his support or maintenance.

4 It is also a fact that after the birth of the first of their three children, the wife no longer worked outside the house and, therefore, had no income at all or such insignificant income that it can be ignored. In the first four months of 1993, according to the evidence of the Appellant, his wife with whom he was living at that time had no income and was totally dependent upon him, as were the three children.

5 When filing his income tax return for the 1993 taxation year, the Appellant deducted in computing his net income the amount of $6,750 as maintenance paid for the three children in the period May to December 1993. According to my calculations, it appears that the maintenance period did not commence until May 15 because the amount $6,750 is precisely seven and one-half times $900. In other words, if he was paying $900 per month for the three children, he would have paid $6,300 for seven months from June 1st to December 31st, and he would have paid another $450 from May 15th to June 1st. In any event, there is no dispute between the parties on that issue and the Respondent acknowledges that the $6,750 paid by the Appellant to his separated wife in the last eight months of 1993 was only for the support of the three dependent children. When filing his 1993 income tax return, he deducted the amount of $6,750 at line 220 in computing his net income.

6 In addition to the deduction at line 220, the Appellant also claimed a non-refundable tax credit with respect to his wife on the basis that he had supported her for the first four months of 1993. According to the amount set out in his income tax return, he took the annual amount of $5,380 and claimed only one-third of that amount on the basis that he had supported his wife for only one-third of the year, being the four months from January to April. When assessing tax for 1993, the Minister of National Revenue disallowed any tax credit with respect to the Appellant's wife.

7 There is no dispute between the parties that the Appellant was entitled to deduct in computing his net income the amount of $6,750 which was paid to the separated wife from May to December 1993. That deduction was permitted under section 60 of the Act and probably allowed under paragraph 60(b). The relevant provisions of the Act are set out in section 118. The Appellant claims that he is entitled to a tax credit with respect to his wife for the first four months of 1993 by reason of paragraph 118(1)(a), which states:

118(1) For the purpose of computing the tax payable under this Part by an individual for a taxation year, there may be deducted an amount determined by the formula

• A×B

where

A is the appropriate percentage for the year, and

B is the aggregate of,

• (a) in the case of an individual who at any time in the year is a married person who supports his spouse, an amount equal to the aggregate of...

8 The Respondent relies on subsection 118(5) to deny the tax credit with respect to the Appellant's wife. Subsection 118(5) states:

118(5) Where an individual in computing his income for a taxation year is entitled to a deduction under paragraph 60(b), (c) or (c.1) in respect of a payment for the maintenance of a spouse or child, the spouse or child shall, for the purposes of this section ... be deemed not to be the spouse or child of the individual.

9 In my view, it is unfortunate that subsection 118(5) attempted to accomplish in one subsection what might better have been accomplished in two subsections, one for the spouse and one for the children. I favour the argument put forward by the Appellant for the interpretation of subsection 118(5).

10 After the separation on May 1, 1993, the Appellant was required to make payments for the support of the children but he was not required to make any payments for the support of his wife. He deducted the amounts paid with respect to the support of his children under paragraph 60(b) and so, in accordance with subsection 118(5), those children are deemed not to be children of the Appellant for the purposes of section 118. In other words, he could not claim a tax credit under section 118 for 1993 with respect to those children.

11 On the other hand, he was not entitled to any deduction under section 60 for 1993 with respect to his wife because he did not pay any amount for her maintenance. He did, however, in the first four months of that year support his wife within the words of paragraph 118(1)(a) “at any time in the year”. Because he was not entitled to a deduction under section 60 for 1993 with respect to his wife, I hold that he was entitled to a tax credit under section 118 with respect to his wife for the one-third of the year when she was supported by him.

12 It is unfortunate that subsection 118(5) attempted to accomplish within one subsection what should have been accomplished in two. In my view, subsection 118(5) should have been dedicated either to a spouse or to a child (or children). The purpose of the subsection is obvious. It is to prevent a taxpayer from getting a double deduction in the year of a family break-up if the taxpayer supported either a spouse or child before the break-up and then made payments for their maintenance after the break-up. In the case of a husband paying maintenance, he cannot in the year of the break-up claim a deduction under section 60 and also claim a tax credit under section 118 with respect to his spouse or with respect to their child. If the words “spouse” and “child” had been described in two separate subsections, I think that the meaning would have been clearer but, as I interpret subsection 118(5), it has the same effect. A tax credit under section 118 with respect to a spouse or child is disallowed only where the taxpayer is entitled to a deduction with respect to both spouse and child under section 60. If a taxpayer is entitled to a deduction under section 60 only with respect to the maintenance of a child, and if the taxpayer is married and supports his spouse at any time in the year, the taxpayer may claim a tax credit under paragraph 118(1)(a) with respect to his spouse. The appeal is allowed for the above reasons.