Smith v. The Queen, docket 2001-1491-IT-I (Informal Procedure)

Date: 20020103

Docket: 2001-1491-IT-I

BETWEEN:

NEIL SMITH,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasonsfor Judgment

Watson, D.J.T.C.C.

[1]            This appeal was heard at Toronto, Ontario, on December 11, 2001 under the Informal Procedure.

[2]            In computing income for the 1995, 1996 and 1997 taxation years, the Appellant deducted the amounts of $1,950, $5,200 and $5,200 respectively as support payments.

[3]            In the Notice of Reassessment of March 22, 1999, the Minister of National Revenue (the "Minister") disallowed the deduction of the support payments for the three years.

[4]            In so reassessing the Appellant and confirming the reassessments, the Minister made the following admissions and assumptions of fact:

(a)            the facts hereinbefore admitted;

(b)            at all relevant times, the Appellant was a married person;

(c)            in the 1995, 1996 and 1997 taxation years, the Appellant and the Appellant's spouse were not separated pursuant to a written separation agreement nor were they separated pursuant to a judicial order;

(d)            the Appellant's spouse was not living separate and apart from the Appellant at the end of the 1995, 1996 and 1997 taxation years;

(e)            the Disallowed Amounts were in respect of payments made by the Appellant to third parties for mortgage payments, utilities and other expenses in respect of the matrimonial home;

(f)             the Disallowed Amounts were not payable on a periodic basis and the Appellant's spouse had no discretion as to the use of the Disallowed Amounts;

(g)            the Disallowed Amounts, in respect of payments made by the Appellant to third parties in the 1995, 1996 and 1997 taxation years, were not made on account of support payments for his spouse.

[5]            At the hearing, the Appellant admitted subparagraphs (b) to (d) and denied subparagraphs (e) to (g).

[6]            The Appellant and his spouse testified at the hearing clearly indicating that they had acted in good faith in this matter.

[7]            The Appellant resided in the basement of the matrimonial home while his spouse and their three children resided in the upstairs rooms. They shared the use of the kitchen, bathroom, living room with the television and the washer and dryer. The amounts deducted by the Appellant as support payments consisted of the mortgage payments and a portion of the property taxes and bills for utilities for the home; he resided in the home at the time the payments were made. They continued to reside in the home even though there was a total breakdown in the relationship of husband and wife because the outstanding balance on the mortgage on the house that was in both of their names exceeded the prevailing market price and could not be sold without incurring a financial shortfall that neither of them could afford. The Appellant made the mortgage payments and the other payments pursuant to a written agreement entered into by them on August 21, 1996. They had separate bank accounts, maintained separate vehicles and each one was responsible for their own affairs, while sharing in the care and upkeep of their three children. They avoided contact with each other as much as possible and they did not hold themselves out to be a couple in the community at large.

[8]            The Respondent submits that at all relevant times, the Appellant was a married person who was not separated from his spouse pursuant to a decree, order or judgment of a competent tribunal or to a written separation agreement and the amounts deducted by the Appellant were for the mortgage and utility payments while he resided in the matrimonial home.

[9]            The Appellant has the burden of proving on a balance of probabilities that the Minister's reassessment was ill-founded in fact and in law and further that he was entitled under the Income Tax Act (the "Act") to claim the amounts paid by him for the mortgage and utilities at the matrimonial home.

[10]          Sections 60 and 60.1 of the Act read in part as follows:

SECTION 60. Other deductions.

There may be deducted in computing a taxpayer's income for a taxation year such of the following amounts as are applicable:

...

(b)      Alimony payments - an amount paid by the taxpayer in the year as alimony or other allowance payable on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and the children, if the taxpayer, because of the breakdown of the taxpayer's marriage, was living separate and apart from the spouse or former spouse to whom the taxpayer 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 a decree, order or judgment of a competent tribunal or under a written agreement;

SECTION 60.1: Maintenance payments.

(1) Where a decree, order, judgment or written agreement described in paragraph 60(b) or (c), or any variation thereof, provides for the periodic payment of an amount by a taxpayer

(a)      to a person who is

(i)       the taxpayer's spouse or former spouse, or

(ii)      where the amount is paid under an order made by a competent tribunal in accordance with the laws of a province, an individual of the opposite sex who is the natural parent of a child of the taxpayer, or

(b)      for the benefit of the person, children in the custody of the person or both the person and those children,

the amount or any part thereof, when paid, shall be deemed for the purposes of paragraphs 60(b) and (c) to have been paid to and received by that person.

(2) Agreement. For the purposes of paragraphs 60(b) and (c), the amount determined by the formula

A - B

where

A              is the total of all amounts each of which is an amount (other than an amount to which paragraph 60(b) or (c) otherwise applies) paid by a taxpayer in a taxation year, under a decree, order or judgment of a competent tribunal or under a written agreement, in respect of an expense (other than an expenditure in respect of a self-contained domestic establishment in which the taxpayer resides or an expenditure for the acquisition of tangible property that is not an expenditure on account of a medical or education expense or in respect of the acquisition, improvement or maintenance of a self-contained domestic establishment in which the person described in paragraph (a) or (b) resides) incurred in the year or the preceding taxation year for maintenance of a person who is

(a) the taxpayer's spouse or former spouse, or

(b) where the amount is paid under an order made by a competent tribunal in accordance with the laws of a province, an individual of the opposite sex who is the natural parent of a child of the taxpayer,

or for the maintenance of children in the person's custody or both the person and those children if, at the time the expense was incurred and throughout the remainder of the year, the taxpayer was living separate and apart from that person, and

B              is the amount, if any, by which

(a) the total of all amounts each of which is an amount included in the total determined for A in respect of the acquisition or improvement of a self-contained domestic establishment in which that person resides, including any payment of principal or interest in respect of a loan made or indebtedness incurred to finance, in any manner whatever, such acquisition or improvement

exceeds

(b) the total of all amounts each of which is an amount equal to 1/5 of the original principal amount of a loan or indebtedness described in paragraph (a),

shall, where the decree, order, judgment or written agreement, as the case may be, provides that this subsection and subsection 56.1(2) shall apply to any payment made thereunder, be deemed to be an amount paid by the taxpayer and received by that person as an allowance payable on a periodic basis.

(underlining is mine)

[11]          Taking into account all of the circumstances of this appeal, including the testimony of the witnesses, the admissions and the documentary evidence in the light of the applicable provisions of the Act and the case law, the Court is satisfied that the Appellant has failed in his onus of establishing on a balance of probabilities that he was entitled to the deductions claimed for the three years at issue. The Court is also satisfied that the Appellant resided in the matrimonial home as his "self-contained domestic establishment" during the relevant period.

[12]          The appeal is accordingly dismissed.

Signed at Ottawa, Canada, this 3rd day of January 2002.

"D.R. Watson"

D.J.T.C.C.

COURT FILE NO.:                                                 2001-1491(IT)I

STYLE OF CAUSE:                                               Neil Smith and H.M.Q.

PLACE OF HEARING:                                         Toronto, Ontario

DATE OF HEARING:                                           December 11, 2001

REASONS FOR JUDGMENT BY:                      the Honourable Deputy Judge D.R. Watson

DATE OF JUDGMENT:                                       January 3, 2002

APPEARANCES:

Agent for the Appellant:                     Iain Buchanan

Agent for the Respondent:                                 Eric Sherbert (Student-at-Law)

COUNSEL OF RECORD:

For the Appellant:                

Name:                               

Firm:                 

For the Respondent:                             Morris Rosenberg

                                                                Deputy Attorney General of Canada

                                                                                Ottawa, Canada

2001-1491(IT)I

BETWEEN:

NEIL SMITH,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on December 11, 2001 at Toronto, Ontario, by

the Honourable Deputy Judge D.R. Watson

Appearances

Agent for the Appellant:                       Iain Buchanan

Agent for the Respondent:                   Eric Sherbert (Student-at-Law)

JUDGMENT

          The appeal from the reassessment made under the Income Tax Act for the 1995, 1996 and 1997 taxation years is dismissed in accordance with the attached Reasons for Judgment.

Signed at Ottawa, Canada, this 3rd day of January 2002.

"D.R. Watson"

D.J.T.C.C.