Date: 981106
Docket: 97-2912-IT-I
BETWEEN:
DENIS R. PATRY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Christie, A.C.J.T.C.
[1] These appeals are governed by the Informal Procedure
prescribed under section 18 and following sections of the Tax
Court of Canada Act. The years under review are 1994 and
1995.
[2] The issues to be determined are whether the appellant is
entitled to deduct $9,788.00 in computing his income for 1994 and
to deduct $7,223.00 for the same purpose in respect of 1995. It
is alleged that these were alimony or maintenance payments.[1]
[3] In computing his income for 1994 and 1995, the appellant
sought to deduct as alimony or maintenance, $9,788.00 and
$10,023.00 respectively. In reassessing, the Minister of National
Revenue disallowed the $9,788.00 and all but $2,800.00 of the
$10,023.00 ($10,023.00 - $2,800.00 = $7,223.00).
[4] The appellant and his former spouse, Deborah ("former
spouse"), separated in 1994. One child, Joshua, was born of
the marriage on August 31, 1992.
[5] There are in evidence three orders issued out of the
Ontario Court (General Division). The first is dated September
26, 1994. It orders that the former spouse have exclusive
possession of what had been the matrimonial home and contents;
grants interim custody of Joshua to the former spouse with access
by the appellant to be agreed upon by the parties; restrains the
appellant from molesting, annoying, etc. the former spouse in any
manner. The second order is dated November 21, 1994. It
continues the terms of the order of September 26, 1994 and
directs that the appellant "shall pay the Canada Trust loan
of $1,000.00 per month, the Canada Trust consumer loan of $450.00
per month, and the car loan of $621.00 per month".[2] The third order is
dated March 7, 1995. It orders "that there will be an
assessment, the funding to be undertaken by the respondent
(husband), but the total cost to be shared when all corollary
matters are heard".
[6] None of the orders make any reference to subsections
60.1(2) and 56.1(2) of the Income Tax Act ("the
Act"). In 1994 and 1995 the appellant made some of
the payments referred to in the order of November 21, 1994,
namely, the previously mentioned $9,788.00 and $7,223.00.
[7] The appellant's evidence is that his lawyer sought the
order of November 21, 1994. The purpose was to ensure that
these debts would be paid. Payment of them, it was said, would
accrue to the benefit of the former spouse and Joshua.
[8] The following provisions[3] of the Act pertain to these appeals.
Included in paragraph 60(b) is authorization to a taxpayer
to deduct, in computing his income for a taxation year, an amount
paid by the taxpayer as alimony or other allowance, payable on a
periodic basis, for the maintenance of the recipient, children of
the recipient or both, if the taxpayer, because of the breakdown
of his marriage, was living separate and apart 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, and the amount was paid under an order of a competent
tribunal. The Ontario Court (General Division) is a competent
tribunal within the meaning of paragraph 60(b). The order
made by that court on November 21, 1994 directed the payments to
be made to Canada Trust in respect of specified debts.
[9] By operation of subsection 56(12) of the Act
"allowance" in paragraph 60(b) does not include
any amount that is received by a recipient unless that person has
discretion as to the use of the amount.
[10] Subsection 60.1(1) deals with the receipt of amounts
paid. It provides that where an order described in paragraph
60(b) provides for the periodic payment of an amount by a
taxpayer for the benefit of the person, children in the custody
of the person or both, the amount, when paid, is deemed for the
purposes of paragraph 60(b) to have been paid to and
received by that person.
[11] Subsection 60.1(2) makes deductible under paragraph
60(b) in computing a taxpayer's income amounts that
would not otherwise be deductible thereunder if the order
referred to in paragraph 60(b) provides therein that
subsection 60.1(2) and subsection 56.1(2) shall apply to any
payment made under the order. In such case the payment is, for
the purpose of paragraph 60(b), deemed to be an amount
paid by the taxpayer and received by the recipient as an
allowance payable on a periodic basis.
[12] Counsel for the respondent relies on the judgment of the
Federal Court of Appeal in The Queen v. Armstrong, 96 DTC
6315. Stone J.A. delivered the reasons for judgment on behalf of
the Court. At the outset of his reasons he said at page 6316:
"The issue raised is whether the payments made by the
respondent to discharge a monthly mortgage obligation including
municipal taxes and arrears with respect to the matrimonial home,
may be deducted by the respondent in reporting his income
subsequent to November 27, 1991, for the taxation years 1991 and
1992."[4]
These facts are recited at that page:
"On November 27, 1991, the Court of Queen's Bench
made a further order upon the application of the respondent's
former spouse, for the maintenance of the children. This order
contains the following:
'2. The respondent [Murray Armstrong] shall continue to
pay the monthly mortgage obligation with respect to the
matrimonial home. Such payment to include all municipal taxes and
tax arrears.'
When the respondent failed to meet the monthly mortgage
obligation and taxes as required by this order, the spouse
obtained garnishee orders under which the respondent was required
to pay amounts equal to the obligation and taxes to the
spouse's solicitor. The solicitors in turn remitted these
funds to the spouse who applied them against the mortgage
obligation and taxes."
[13] He went on to say at page 6319 that what is deemed under
subsection 60.1(2) to be an allowance payable on a periodic basis
applies only where the order of the Court provides that the
statutory provisions cited in the subsections, i.e. subsection
60.1(2) and 56.1(2), applies to any payment pursuant thereto.
[14] At page 6320 he dealt with subsections 60.1(1) and
56(12). He noted that 60.1(1) does not expressly incorporate the
definition of "allowance" in 56(12). But it does
restrict its own application to the periodic payment of an amount
by a taxpayer provided for in an order described in paragraph
60(b). The description in 60(b) is for an order of
a competent tribunal, as alimony or other allowance payable on a
periodic basis for the maintenance of the recipient thereof,
children of the marriage, or both. His Lordship went on, and I am
paraphrasing: one must read the qualifying words "as alimony
or other allowance" in its particular context within
paragraph 60(b) for the full description of
"order" referred to in subsection 60.1(1). If not, any
order would theoretically fall within the description.
[15] The reasons for judgment add that the descriptive
language just cited is absent from subsection 60.1(1). Further,
the definition of "allowance" in subsection 56(12) was
adopted, inter alia, expressly for the purpose of
paragraph 60(b). Subsection 60.1(1) does not itself
provide for the deduction of an amount paid and received.
Instead, as previously indicated, it enlarges the right of
deduction in paragraph 60(b) by deeming for the purpose of
that paragraph an amount to have been paid by a taxpayer and
received by the recipient. Mr. Justice Stone concluded his
observations pertaining to these subsections as follows:
"In my view, the subsection 56(12) defintion of
'allowance' is to be read together with subsection
60.1(1) of the Act and the latter subsection construed
accordingly. Accordingly, as the former spouse had no discretion
as to the use of the moneys they cannot be deducted by the
respondent from his income for the taxation years in
question."
His reasons for judgment terminate with these words at page
6321:
"The respondent submitted that payments could be deducted
from income in any event to the extent that they were paid
pursuant to garnishee proceedings instituted by the former
spouse. The garnishee proceedings resulted in the attached moneys
being paid over to the former spouse's solicitors. In turn,
the former spouse received the moneys and applied them in
satisfaction of the obligation imposed upon the respondent by the
court order of November 27, 1991. I cannot accept that in the
circumstances the moneys were paid to the former spouse in such a
manner as left her with a discretion as to their use. In my view,
the moneys were paid pursuant to the court order of November 27,
1991 under which the respondent's obligation was created
despite the fact that the former spouse found it necessary to
take garnishee proceedings for the purpose of enforcing that
obligation."
[16] In my opinion Armstrong governs the disposition of
the appeals at hand. It is a decision of the Federal Court of
Appeal and I am bound to follow and apply it. As in
Armstrong, in the case at hand subsection 60.1(2) of the
Act is of no assistance to the appellant in seeking
deductibility under paragraph 60(b) because the order of
the Ontario Court (General Division) dated November 21, 1994 does
not state that subsection 60.1(2) and subsection 56.1(2) apply to
any payment made thereunder.
[17] Also, subsection 56(12) is to be read together with
subsection 60.1(1), and again, as in Armstrong, the former
spouse had no discretion as to the use of the money paid under
the order. It follows that subsection 60.1(1) can have no
application in allowing the amounts in issue to be deductible
under paragraph 60(b). Finally, this finding of lack of
discretion precludes the deduction of the $9,788.00 or the
$7,223.00 under paragraph 60(b), apart from the
inapplicability of subsections 60.1(1) and (2), because the
definition of "allowance" in subsection 56(12) requires
the recipient to have discretion as to the use of the amount.
[18] The appeals are dismissed.
Signed at Ottawa, Canada, this 6th day of November 1998.
"D.H. Christie"
A.C.J.T.C.C.
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