Gordon a Bryce v. Minister of National Revenue, [1978] CTC 3144, [1978] DTC 1833

The Assistant Chairman:—This is an appeal from an assessment of income tax, which assessment did not give the taxpayer a deduction, in computing his taxable income, in the amount of $1,256.20 which he paid in 1975 for the benefit of his former wife pursuant to a decree nisi in a divorce action. The position taken by the appellant is that the amount claimed is deductible by the combined effect of paragraph 60(b) and section 60.1 of the Income Tax Act, SC 1970-71-72, c 63 as amended. The respondent refutes that contention.

In 1975 the appellant was divorced from his wife by a decree of the Supreme Court of British Columbia dated the 20th day of March, 1975. The decree contained, inter alia, the following clauses:

AND THIS COURT DOTH FURTHER ORDER AND ADJUDGE that the Respondent (Petitioner by Counter-Petition) is entitled to maintenance from the Petitioner (Respondent by Counter-Petition) in accordance with the. terms of an agreement between the Petitioner (Respondent by CounterPetition) and the Respondent (Petitioner by Counter Petition) which are as follows:

1) The duplex, 33394 - 96 Westbury Ave, in the Municipality of Matsqui, shall be transferred to Joint Tenancy in the names of the Petitioner (Respondent by Counter-Petition) Gordon Alexander Bryce, and the Respondent (Petitioner by Counter-Petition) Margaret Ruth Bryce;

2) The duplex will not be sold unless by mutual consent before March 1, 1980, after which date either party, at the request of the other shall be obligated to sell the duplex and the net proceeds shared equally;

3) The Petitioner (Respondent by Counter-Petiiton) will make all payments on the mortgage as they become due and payable, and will not further encumber the duplex property. He will also maintain the duplex in good condition at his expense, and pay all the land taxes, sewer rates, water rates and cablevision levy as they fall due. None of the foregoing expenses will be charged to Mrs. Bryce and Mr. Bryce will save her harmless therefrom;

4) Mr. Bryce will own all revenues from the rental or other use of the other half of the duplex (33394);

5) The Respondent (Petitioner by Counter-Petition) will forego any claim for monthly support from the Petitioner (Respondent by Counter-Petition) other than that provided by his paying for her benefit one-half the monthly instalments for mortgage, land taxes, water rates, cablevision levy, and maintenance in respect of the said duplex.

6) The Petitioner (Respondent by Counter-Petition) will be entitled to receive and use to his own use and benefit all the proceeds from the sale of the farm property on Downes Road, and be entitled to the benefits of any other investments which he might have.

As stated in paragraph 1 above, the appellant owned a duplex in Matsqui. At the time of the divorce his spouse lived in one-half and he rented the other half, from which he collected rent. Following the divorce he transferred, as directed by the Court Order, that property to himself and his former wife as joint tenants. As required by paragraph 3 above, he paid “all the land taxes, sewer rates, water rates and cablevision levy’’ as they fell due, as well as “all payments on the mortgage’’ as they became due and payable.

In the course of 1975 the appellant paid, with respect to the duplex, the following amounts in keeping with the said paragraph 3:

For one-half of the duplex the amount would be $1,507.45. Since the Order was only granted in March 1975, a claim could only be made for ten-twelfths of the amount of $1,507.45, and so the claim was for $1,256.20.

When he filed his income tax return, the appellant claimed nothing in this respect. Later in was decided to make such a claim and, after an Order was granted extending the time within which he could object, the appellant objected and, following confirmation of the assessment by the respondent, appealed to this Board.

There was no dispute as to the facts. The sole issue is what interpretation should be given to the combined effect of paragraph 60(b) and section 60.1. It is clear the decree nisi did not specify a stipulated allowance was to be paid to his former spouse and it is also clear that none of the amounts paid were paid to his former spouse. At the close of submissions to me by the appellant’s representative, I advised counsel for the respondent that, were it not for section 60.1, I would have no hesitation in dismissing the appellant’s appeal. However, I could clearly see that it could be that that section might make the amount claimed deductible. Section 60.1 reads as follows:

60.1 Where, after May 6, 1974, a decree, order, judgment or written agreement described in paragraph 60(b) or (C), or any variation thereof, has been made providing for the periodic payment of an amount by the taxpayer to or for the benefit of his spouse, former spouse or children of the marriage in the, custody of the spouse or former spouse, the amount or any part thereof, when paid, shall be deemed to have been paid to and received by the spouse or former spouse if the taxpayer was living apart from the spouse or former spouse at the time the payment was received and throughout the remainder of the year in which the payment was received.

Paragraph 60(b) which was the cornerstone of the respondent’s submission reads as follows:

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.

That section has been the subject of many appeals since it was first in the Income Tax Act. Its interpretation appeared clear, although there still was considerable litigation with respect to what could be deducted, until the decisions of the Federal Court of Appeal in the appeals of Her Majesty the Queen v Morton Pascoe, [1976] 1 FC 372; [1975] CTC 656; 75 DTC 5427, and Attorney General of Canada v James C Weaver and Freda J Weaver, [1976] 1 FC 423; [1975] CTC 646; 75 DTC 5462. In the Pascoe case the payments were in compliance with the following two paragraphs of a written separation agreement:

14. THE Husband agrees to pay all medical, hospital and dental accounts on behalf of the Wife and infant children of the marriage for such period as they are entitled to maintenance under this agreement and such accounts are to include all drugs prescribed by a medical doctor.

15. THE Husband is to provide all educational expenses for the infant children. which shall include books, transportation and tuition fees which Said expenses Shall include University, College or post high school education (Teachers College: Ryerson Institute: Business College, etc.).

Also in the Pascoe case, the court held at 374, 658 and 5428 respectively:

“In our view, neither the sums paid by the Respondent for the education of his children nor those paid for the medical expenses were deductible.

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.

If paragraph 60(b) alone were involved, because of the above-quoted paragraph, I would have dismissed the present appeal. It.is to be noted that that Judgment was given on October 31, 1975, and involved the 1969, 1970 and 1971 taxation years. In 1974, effective May 6, 1974, section 60.1 was added to the Income Tax Act. It was added while the Pascoe case was before the courts but, since it was only effective on May 6, 1974, it was not referred to in that case. Of course, with respect to matters of substance it is the law in existence in the year which determines the issue unless the amending law is stated to be retroactive.

The appellant’s representative endeavoured to convince me that I should not accept the definition of “allowance” as stated by Mr Justice Pratte in the Pascoe case (supra). He referred to English dictionaries and English cases as well as to the French text of the Income Tax Act. I advised him that I was proceeding on the premise that Mr Justice Pratte’s advice was the only advice I would accept. His next approach was, in effect, that section 60.1 should be considered remedial and given a liberal interpretation and, in the result, broadening the decision of Mr Justice Pratte in the Pascoe case—something more than that which is an allowance within his definition is now allowed by the addition to the Act of section 60.1. The conclusion I drew from what he said was that, if the amount were not an ‘‘allowance’’, it could still be allowed if it were for the benefit of the spouse or former spouse. Insofar as “benefit” was concerned, his submission was that it could be in the form of increased equity in the duplex (paragraph 2 above) or free rent.

The respondent’s position was that any amount, to be allowed in the circumstances of this appeal, still had to meet the test in the Pascoe case—if it did not, it was not deductible. The submission was that those payments within section 60.1 were then made within paragraph 60(b) and so were deductible but if, and only if, they were an “allowance” within the Pascoe definition. In the result, in this case the submission was that, since no specific amount was specified by the Court Order, nothing can be deducted—it is not “a limited predetermined sum of money.”

I am of the opinion that the uncertainty of the interpretation of the section, as evidenced by the many appeals relating to it, was clarified and the law was made reasonably clear by the decision in the Pascoe case. It now appears that the addition of section 60.1 to the Income Tax Act is only opening the door to confuse the law again. Is not the key word in section 60.1 “benefit”? The deduction is not the value of the benefit to the former wife—it is the payment to a third party if such payment is, to any extent, to her benefit.

Counsel for the respondent referred in argument to the case of Gerhard Hausmann v MNR and there was filed with me what purported to be the Reasons for Judgment of a colleague of mine in that case. At that time a copy was given to the representative of the appellant. It appears the Reasons are unreported. One could say that the decision and reasons I am to give are contrary to the reasons in that case. That case, like many of the cases I have heard, has taken advantage of the change in the Tax Review Board Act, SC 1970-71-72, c 11, from the provisions in the Income Tax Act relating to the Tax Appeal Board. In the latter Act, that Board was compelled to issue written reasons— this Board is not so compelled and the members may issue oral reasons. In the Hausmann case I do not know what the argument was to the Board with respect to the Pascoe case, paragraph 60(b) or section 60.1. In the result, there not being any written reasons in the Hausmann case, I consider this appeal unfettered by any restrictions due to that case.

I am of the view that the position taken by the appellant is correct. He paid what he was required to pay by an Order of a court of competent jurisdiction. The taxes, mortgage payments, sewage and water rates and cablevision were paid as the court ordered them to be. (The fact that by contract he may have been required to pay them is irrelevant—the payment satisfies the court requirement.) As I view it, no one can suggest that it was not for the benefit of the former spouse as the substantial effect was that she had free rent, and, in addition, the greater the sum paid on the mortgage—the greater the sum she would receive on sale of the property. I am satisfied that all payments claimed are within the ambit of section 60.1 and that those payments are deductible to the appellant.

Judgment will go allowing the appeal.

Appeal allowed.