Date: 20020606
Docket:
2001-3626-IT-I
BETWEEN:
HUGUETTE
PAYETTE,
Appellant,
and
HER MAJESTY THE
QUEEN,
Respondent.
Reasonsfor
Judgment
Lamarre Proulx,
J.T.C.C.
[1]
This is an appeal under the informal procedure relating to the
1997 to 1999 taxation years.
[2]
The issue is whether the appellant must include in her income
support in the amounts of $5,575, $9,220 and $11,932 she received
from her former spouse for her children for each of the years in
issue respectively.
[3]
The facts on which the Minister of National Revenue (the
"Minister") relied in making his reassessments are set
out in paragraph 5 of the Reply to the Notice of Appeal (the
"Reply") as follows:
[TRANSLATION]
(a)
the appellant and Brian Nault (the "former
spouse") separated on or about December 31,
1991;
(b)
during the 1997, 1998 and 1999 taxation years, the appellant and
her former spouse had four children: Sébastien, born
on November 1, 1980, Jean-François, born on
January 1, 1983, Caroline, born on April 1, 1984, and
David, born on April 1, 1984;
(c)
by an interim order dated December 13, 1996 (the
"Order"), the Superior Court of Quebec ordered the
former spouse to pay the appellant $1,500 a month as support for
her children starting on December 15, 1996;
(d)
during the 1997, 1998 and 1999 taxation years, the appellant
received amounts of $5,575, $9,220 and $11,932 respectively as
child support in accordance with the Order;
(e)
the appellant and her former spouse were living separate and
apart at the time the child support payments were made and during
the rest of 1997, 1998 and 1999;
(f)
the Order was made before May 1997 for the purposes of
subsection 56.1(4) of the Income Tax Act (the
"Act");
(g)
the appellant and her former spouse did not file a joint election
with the Minister in prescribed form and manner, as provided for
in subparagraph (b)(i) of the definition of
"commencement day" in subsection 56.1(4) of the
Act;
(h)
the Order was not cancelled or replaced by a subsequent
order;
(i)
the Order has no commencement day within the meaning of the
definition in subsection 56.1(4) of the Act;
and
(j)
during the 1997, 1998 and 1999 taxation years, the appellant did
not include the child support income in the amounts of $5,575,
$9,220 and $11,932 respectively.
[4]
The notice of appeal reads in part as follows:
[TRANSLATION]
. . .
In a telephone conversation with Mr. Tremblay, I
learned—and it came as no surprise—that my former
spouse, Brian Nault, objected to what I had stated in my
first notice of objection, which I filed on May 1, 2000, and
which led to a decision in my favour on January 25, 2001. So
I had to start all over again.
. . .
[5]
The appellant works as a cook. She admitted
subparagraphs 5(a) and (c) to (f) of the Reply. As to
subparagraph 5(b), she informed the Court that
Sébastien was born on November 7, 1980,
Jean-François on January 16, 1983, and David
and Caroline on April 12, 1984.
[6]
The order referred to in subparagraph 5(c) of the Reply was
filed as Exhibit A-1.
[7]
As Exhibit A-2, the appellant filed a document dated
October 29, 1997, apparently signed by Brian Nault and
Huguette Payette, which reads as follows:
[TRANSLATION]
I, Brian Nault, agree not to report or deduct the support
which I give to my former wife, Huguette. This is an agreement
for the benefit of our children since reporting or deducting the
support would hurt the children financially. I will report no
support on my income tax returns, and I truly undertake not to do
so.
[8]
The appellant also filed, as Exhibit A-3, the Quebec form
concerning the election regarding a judgment or a written
agreement. That document too is dated October 29, 1997, and
is likewise apparently signed by both former spouses. It was also
filed as Exhibit I-1.
[9]
As well, Exhibit A-3 includes a copy of a notice of
objection from the appellant dated August 17, 2000, which
states inter alia:
[TRANSLATION]
. . . I obtained a court judgment awarding support on
December 13, 1996, and received the first cheque on
October 20, 1997. So I reached an agreement with
Brian Nault, my former spouse, on October 29, 1997,
that I would not report my support and that he would not deduct
it. . . .
[10] The
purported agreement to vary the inclusion/deduction regime had
not been discussed between lawyers, but had apparently only been
discussed between the two former spouses. The appellant said that
it was difficult to reach her husband and that it would have been
hard to draft a new agreement for the purpose of obtaining a new
order. She explained as well that Mr. Nault did not report
his income or claim the tax deductions relating to the payment of
support. That, she said, was why he agreed to sign the
document.
[11]
Brian Nault testified at the request of counsel for the
respondent, who showed him Exhibit A-1, being the
Superior Court judgment dated December 13, 1996, and asked
him how he interpreted the support order.
[12]
Mr. Nault said that the agreement which had been discussed
between the parties provided for the appellant to include the
support in her income and for Mr. Nault to deduct it. A
Superior Court judgment dated January 26, 2001, was filed as
Exhibit I-2. That judgment provided that the support
would be $578.84 a month starting on September 1, 2000.
Since that order, said Mr. Nault, he can no longer deduct
the support amounts paid for the children.
[13] Counsel
showed Mr. Nault the handwritten note which is
Exhibit A-2. He said that he had not signed that
document because he would have consulted his lawyer first. He was
paying the support, so why would he have paid his former
spouse's taxes? He also asserted that he had deducted the
support amounts in his income tax returns.
[14]
Exhibit I-3 is a letter from Mr. Nault to the
Canada Customs and Revenue Agency and bears his signature. It is
a letter disputing the appellant's assertion that she did not
have to include the support amounts. The signature closely
resembles that on Exhibit A-2.
[15] At the
hearing, the appellant referred to a notice of objection which
she had purportedly filed and to reassessments in her favour, as
well as to the reassessments under appeal herein. As the Reply
made no mention of this intermediate phase, I asked the appellant
to send me those documents. Counsel for the respondent did not
appear to know what it was all about either. The appellant sent
me documents establishing the existence of reassessments dated
January 25, 2001. Those assessments exclude the support
amount.
[16] Through the
Registry of this Court, I then asked counsel for the respondent
to explain to me why those reassessments had been made and
subsequently varied. By letter dated May 1, 2002, counsel
thereupon gave me a full explanation of the case, which I think
it useful to reproduce below:
[TRANSLATION]
. . .
The purpose of this letter is to answer Judge Lamarre
Proulx's question in the case cited above. The question as
you have sent it to me is:
Why does the reply to the notice of appeal not address either the
appellant's allegations in the second paragraph of her notice
of appeal or the matter of the support amounts excluded from the
computation of the appellant's income for the years in issue
and shown on the notices of reassessment dated January 25,
2001?
The appellant had not included the support she received in her
income tax returns for 1997, 1998 and 1999. By notice of
reassessment dated May 1, 2000, the amounts of support she
did not report were added in computing her income for the
three years in issue.
The appellant objected to this reassessment on August 23,
2000. Her representations were to the effect that she had an
agreement with her former spouse under which he undertook not to
deduct the amounts of support he paid in computing his income. It
was then that the appellant sent the Canada Customs and Revenue
Agency (CCRA) an election form relating to the new tax measures
concerning child support, which she claims was signed by both
spouses on October 29, 1997. The election form that the
appellant sent was the provincial form, accompanied by a note
signed by her former spouse (Mr. Nault) certifying that he
undertook not to deduct the support paid for his children in
computing his income. Despite the irregularities of those
documents, the Chief of Appeals was prepared to accept them if
they reflected the intention of the parties.
Following these representations, the appellant was reassessed on
January 4, 2001, with the support being excluded from the
calculation of her income. Consequently, her former spouse was
also reassessed, on January 22, 2001, and the deduction of
the support paid for the years in issue was
disallowed.
The appellant's former spouse objected to his reassessment,
arguing in particular that he had an order dated
December 13, 1996, specifying the amount of support he was
to pay and providing that those amounts would be deductible in
computing his income. When confronted with the allegation that he
had entered into an agreement with his former spouse,
Mr. Nault denied that he had signed any document at
all.
Faced with this contradictory information, the Chief of Appeals
concluded that he had to rely on the document with the greatest
probative value in making a decision. Since the former spouse
denied that he had signed the election form and the agreement,
and the election form was the provincial one, the order dated
December 13, 1996, was the most probative
document.
Consequently, the appellant was reassessed on June 28, 2001,
so as to include the support in computing her income, and the
former spouse was reassessed on the same date so as to allow the
deduction of the support paid.
In view of the above, the reply to the notice of appeal does not
deal with the second paragraph of the notice of appeal or with
the notices of assessment dated January 25, 2001, submitted
by the appellant, since the appeal before the Tax Court of Canada
results from the appellant's last assessment, that of
June 28, 2001.
. . .
Argument
[17] Counsel for
the respondent argued that the order under which the payments
were made dated from before May 1997 and that the
inclusion/deduction regime thus applied. She referred to the
decision of this Court in Kovarik v. Canada, [2001]
T.C.J. No. 181 (Q.L.), paragraphs 8 and 9:
Under what I
may describe as the old régime (pre May 1997) spouses
making payments to separated or ex spouses for the support of
children could deduct those payments and the recipient had to
include them in income. Following the decision of the Supreme
Court of Canada in Thibaudeau v. Canada, [1995] 2 S.C.R.
627, the legislation changed. So long as a pre May
1997 agreement remained unchanged the deduction/inclusion system
under the old régime prevailed.
If a new
agreement were entered into, or an old agreement was changed in a
particular way, the deduction/inclusion régime ceased and
only payments made up to the "commencement day", as
defined, were deductible by the payor and includible by the
payee.
[18] Counsel
argued that it is hard to believe the appellant's former
spouse would have signed the documents filed by the appellant as
Exhibits A-2 and A-3 without the advice of a
lawyer or without another court order. Relations between the
appellant and her former spouse are strained and acrimonious, and
it is implausible that those relations would have been so
friendly on October 29, 1997 as to permit the signing of
such a document.
Conclusion
[19] Contrary to
what counsel for the respondent suggests in the last paragraph of
her letter cited in paragraph 16 of these reasons, I believe
that all the facts relating to and useful in understanding an
assessment must be set out in the Reply. It is on the basis of
that Reply that the Court can decide on the complexity of an
appeal. This avoids confusion at the time of the hearing and
allows the right decisions to be made in the handling of the case
prior to the hearing. In this case, for example, a few days
before the hearing, a lawyer newly retained by the appellant
requested that the hearing be postponed so that he could review
the case, a motion which the Court denied. That request was not
repeated at the hearing, and the appellant represented herself.
Would the Court's decision have been the same if all the
facts had been related?
[20]
It was impossible to determine from the Reply that the issue
would be whether the payer of the support actually signed one or
more documents concerning the joint election for the application
of the new tax measures pertaining to child support paid, which
election is provided for in subsection 56.1(4) of the
Act. The facts concerning the reassessments of January
2001 were important. A description of them would have drawn the
Court's attention to the real point at issue, namely the
authenticity of Exhibit A-2, and would thus have
permitted a full and informed debate on both the facts and the
law.
[21] I now return
to the more specific facts of this appeal. It is true that, under
the order of December 13, 1996 (Exhibit A-1), the
support is calculated on the basis of the tax effects of its
inclusion in income. That same order, however, fixed the amount
of support at $1,500 a month. The appellant received $5,575 in
1997. According to her notice of objection filed as
Exhibit A-3, she did not receive the first cheque
until October 20, 1997. The agreement entered into with her
former spouse on October 27, 1997, that she not report that
amount and that he not claim a deduction in respect of it is thus
somewhat plausible.
[22] Furthermore,
the appellant testified that Mr. Nault had signed the
document in question because, in any case, he was not reporting
his income at the time and was not deducting the support. This
appears to be corroborated by Mr. Nault's tax returns.
No such deduction was claimed in the 1996 return. The claim was
very explicitly made in the others, but these returns were all
filed late, on March 8, 2000, long after October 27,
1997. The first notices of reassessment were subsequently sent to
the appellant on May 1, 2000.
[23]
As it is somewhat plausible that the agreement of
October 27, 1997, is authentic, and as the Reply failed to
fulfil its function of establishing the facts relevant to an
assessment, so that an appropriate legal debate consequently
could not be conducted, it is my view, in the circumstances, that
the appeals must be allowed.
Signed at Ottawa, Canada, this
6th day of June 2002.
[OFFICIAL
ENGLISH TRANSLATION]
"Louise
Lamarre Proulx"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
2001-3626(IT)I
BETWEEN:
HUGUETTE PAYETTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on March 12, 2002, at Ottawa,
Ontario, by
the Honourable Judge Louise Lamarre
Proulx
Appearances
For the
Appellant:
The Appellant herself
Counsel for the
Respondent:
Marlyse Dumel
JUDGMENT
The appeals from the assessments made under the Income Tax
Act for the 1997, 1998 and 1999 taxation years are allowed,
without costs, and the assessments are referred back to the
Minister of National Revenue for reconsideration and
reassessment, in accordance with the attached Reasons for
Judgment.
Signed at Ottawa, Canada, this 6th day of June
2002.
J.T.C.C.
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