[OFFICIAL ENGLISH TRANSLATION]
Date: 20020723
Docket: 2000-3753(IT)I
BETWEEN:
JOHANNE R. GAGNON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bowman, A.C.J.
[1] At issue in these appeals is
whether, in computing her income for the 1996 and 1997 taxation
years, the appellant was required to include the amounts of
$18,078 and of $18,728 that she received during those
years under a separation agreement as support payments for her
children.
[2] The divorce between the appellant
and Thomas Alexander Crossgrove was granted by the Ontario Court
of Justice on January 16, 1993. The former spouses are the
parents of two children, Michel and Zakari. They signed a
separation agreement dated May 25, 1990, which was varied by
an agreement dated August 20, 1992. The judgment of divorce,
rendered following these two agreements, was silent concerning
the obligations of the appellant's spouse to make support
payments to her.
[3] Under the varied agreement, the
appellant's spouse was required to make monthly support
payments to her, which were to be increased annually in
accordance with the consumer price index.
[4] The agreement was varied again
only in 2000, that is, after the taxation years at issue.
[5] On April 13, 2000, the
appellant and her former spouse signed a joint election (form
T1157), agreeing that after January 1, 2000, the payments
provided for in the separation agreement were neither deductible
nor taxable. Unfortunately, at issue are the 1996 and 1997
taxation years.
[6] The appellant relied on the
Supreme Court of Canada decision in Thibaudeau v. Canada,
[1995] 2 S.C.R. 627. The decision in Thibaudeau
is certainly important and probably resulted in amendments to the
Income Tax Act ("the Act"), but in my
view, it is not of assistance to the appellant. Before the
amendments concerning support payments received after 1996 were
made to the Act, support payments were usually deductible
by the payor and taxable in the hands of the recipient. In
Thibaudeau, it was argued that this inclusion/deduction
system infringed the right to equality guaranteed by
section 15 of the Canadian Charter of Rights and
Freedoms. The Supreme Court of Canada dismissed that
argument, but nonetheless, its decision in Thibaudeau
resulted in amendments to the Act that I shall try briefly
to describe.
[7] Support payments made under
agreements or orders made before May 1997 were usually deductible
by the payor and taxable in the hands of the recipient, unless an
event occurred that gave the agreement or order a
"commencement day" that was later than April 1997.
[8] The relevant provisions of
section 56 of the Act that were in force in 1996 read
as follows:
(1) Without
restricting the generality of section 3, there shall be included
in computing the income of a taxpayer for a taxation
year,
...
(b) an amount
received by the taxpayer in the year as alimony or other
allowance payable on a periodic basis for the maintenance of the
taxpayer, children of the taxpayer or both the taxpayer 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 who was required to make the payment at
the time the payment was received and throughout the remainder of
the year and the amount was received under a decree, order or
judgment of a competent tribunal or under a written
agreement;
[9] Clearly, the amounts received by
the appellant in 1996 were taxable.
[10] In 1997, matters became much more
complicated.
[11] Paragraph 56(1)(b) was amended
to read as follows:
(b) the total
of all amounts each of which is an amount determined by the
formula
A - (B + C)
where
A is the total
of all amounts each of which is a support amount received after
1996 and before the end of the year by the taxpayer from a
particular person where the taxpayer and the particular person
were living separate and apart at the time the amount was
received,
B is the
total of all amounts each of which is a child support amount that
became receivable by the taxpayer from the particular person
under an agreement or order on or after its commencement day and
before the end of the year in respect of a period that began on
or after its commencement day, and
C is the total
of all amounts each of which is a support amount received after
1996 by the taxpayer from the particular person and included in
the taxpayer's income for a preceding taxation year.
[12] In other words (and I acknowledge the
risk of oversimplification), child support amounts received under
an agreement or an order after the "commencement day"
should not be included in the recipient's income.
[13] What was the commencement day of the
agreement in this case?
[14] "Commencement day" is defined
in subsection 56.1(4) as follows:
"Commencement day" at any time of an agreement or
order means
(a) where the
agreement or order is made after April 1997, the day it is made;
and
(b) where the
agreement or order is made before May 1997, the day, if any, that
is after April 1997 and is the earliest of
(i) the day
specified as the commencement day of the agreement or order by
the payer and recipient under the agreement or order in a joint
election filed with the Minister in prescribed form and
manner,
(ii) where the
agreement or order is varied after April 1997 to change the child
support amounts payable to the recipient, the day on which the
first payment of the varied amount is required to be made,
(iii) where a subsequent
agreement or order is made after April 1997, the effect of which
is to change the total child support amounts payable to the
recipient by the payer, the commencement day of the first such
subsequent agreement or order, and
(iv) the day specified in
the agreement or order, or any variation thereof, as the
commencement day of the agreement or order for the purposes of
this Act.
[15] Clearly, paragraph (a) is not
applicable in this case because the agreement was made before
April 1997. Concerning paragraph (b), subparagraphs (ii)
and (iii) are not applicable because the agreement was not varied
to change the amount of the support payments, and there was no
subsequent agreement changing the support amounts.
Subparagraph (iv) is not applicable because no day was
specified in the agreement for the purposes of the
Act.
[16] The only subparagraph that can apply is
subparagraph (i). On the joint election (form T1157),
Ms. Gagnon and her former spouse specified a day; the day
they specified was January 1, 2002. This day is therefore the
commencement day.
[17] Two other points should be noted. The
separation agreement and the varied separation agreement were
signed before the divorce. In my view, this fact does not render
the separation agreement null and void because a prior separation
agreement survives a judgment of divorce unless the divorce
judgment provides otherwise. The other point is that the annual
increases to the support payments in accordance with the consumer
price index do not constitute a variation of the agreement within
the meaning of subparagraph 56.1(4)(b)(ii). These
increases are in accordance with the agreement; they do not
change the agreement.
[18] I have a great deal of sympathy for the
appellant. It seems to me that she did not receive good advice
concerning the effect of the decision in Thibaudeau.
I am nevertheless obliged to dismiss the appeals.
Signed at Ottawa, Canada, this 23rd day of July 2002.
A.C.J.
Translation certified true
on this 6th day of November 2003.
Sophie Debbané, Revisor
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