Clemens v. The Queen, docket 2002-1476(IT)I (Informal Procedure)

Date: 20021031

Docket: 2002-1476-IT-I

BETWEEN:

KELLI MARIE CLEMENS,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for judgment

Little, J.

[1]            The Appellant and Patrick Clemens ("Husband") were married in 1989.

[2]            The Appellant and her Husband separated in August 1994. A separation agreement ("Separation Agreement") was signed by the parties on the 28th day of October 1994.

[3]            The Separation Agreement contained numerous clauses outlining the rights and responsibilities of each party. Paragraph 8.1 of the Separation Agreement provided as follows:

MAINTENANCE

8.1            The Husband covenants and agrees to pay to the Wife for the maintenance and support of the infant Children of the marriage in the Wife's custody, as periodic payments within the meaning of the Income Tax Act (Canada), the sum of $235.00 per month for each of the following children: Devin, Jacob and Arielle, commencing on the 1st day of November, 1994, and continuing on the 1st day of each and every month thereafter until such time as each respective child:

8.1.1         reaches the age of nineteen (19) years;

8.1.2         ceases to reside with the Wife;

8.1.3         obtains economic independence; or

8.1.4         marries or dies.

(Note: None of the above conditions numbered 8.1.1 through 8.1.4 are applicable to the year under appeal (1999)).

[4]            The Appellant and her Husband reconciled in January 1996 and they lived together as husband and wife from January 1996 until they separated again in August 1998. The Appellant and her Husband have remained separated since August 1998.

[5]            The Appellant and the Husband testified that the child support payments as specified in the Separation Agreement were not paid to the Appellant by the Husband during the time of the reconciliation i.e., from January 1996 to August 1998.

[6]            The Appellant and her Husband testified that at the time of the second separation in August 1998 it was verbally agreed that the Husband would pay the child support payments as specified in the Separation Agreement dated the 28th day of October 1994. The Appellant and the Husband also testified that they verbally agreed after the second separation, i.e., in August 1998, that the other terms as outlined in the Separation Agreement would also apply.

[7]            The Husband testified that he paid the sum of $705.00 per month or a total of $8,460.00 to the Appellant as child support payments in the 1999 taxation year. The Appellant said that on a number of occasions the Husband arbitrarily reduced the child support payments when he took the children out to lunch or made other payments on behalf of the children.

[8]            The Appellant did not report the amount of $8,460.00 as income in the 1999 taxation year.

[9]            The Minister of National Revenue (the "Minister") reassessed the Appellant on the 18th day of December 2000 to include the amount of $8,460.00 in her income for the 1999 taxation year.

B.             ISSUE

[10]          The issue is whether the Appellant is required to include the child support payments of $8,460.00 in her income for the 1999 taxation year.

C.             ANALYSIS

[11]          During the appeal the Appellant stated that her Husband has not followed the requirements specified in the Separation Agreement and therefore the Agreement should be ignored. The Appellant also stated that her Husband has refused to agree to sign a new agreement or amend the existing agreement to provide for items such as divorce, child support and other issues.

[12]          The Husband maintains that he has complied with the conditions contained in the Separation Agreement.

[13]          Under what has sometimes been described as the old tax régime (pre-May 1997) spouses making payments to separated or ex-spouses for the support of the children were allowed to deduct those payments and the recipient was required to include the amount of the payments in their income. Following the decision of the Supreme Court of Canada in Thibaudeau v. Canada, [1995] 2 S.C.R. 627, the Income Tax Act (the "Act") was amended and new provisions were introduced to deal with child support payments.

[14]          The amended Act provided that if a pre-May 1997 agreement or Court Order remained unchanged the deduction/inclusion system as provided by the old régime prevailed. However, if a new agreement was entered into by the parties or if a new Court Order was issued, or if an old agreement was changed in a particular way the deduction/inclusion régime would not apply and only payments made up to the commencement day, as defined in the Act, were deductible from income by the payor and included in income by the payee.

[15]          Subsection 56.1(4) of the Act defines "child support amount", "commencement day" and "support amount". Subsection 56.1(4) reads as follows:

"child support amount" means any support amount that is not identified in the agreement or order under which it is receivable as being solely for the support of a recipient who is a spouse or former spouse of the payer or who is a parent of a child of whom the payer is a natural parent.

"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.

"support amount" means an amount payable or receivable as an allowance on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and children of the recipient, if the recipient has discretion as to the use of the amount, and

(a) the recipient is the spouse or former spouse of the payer, the recipient and payer are living separate and apart because of the breakdown of their marriage and the amount is receivable under an order of a competent tribunal or under a written agreement; or

(b) the payer is a natural parent of a child of the recipient and the amount is receivable under an order made by a competent tribunal in accordance with the laws of a province.

[16]          Paragraph 60(b) of the Act reads as follows:

(b) Support -- 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 paid after 1996 and before the end of the year by the taxpayer to a particular person, where the taxpayer and the particular person were living separate and apart at the time the amount was paid,

B is the total of all amounts each of which is a child support amount that became payable by the taxpayer to 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 paid by the taxpayer to the particular person after 1996 and deductible in computing the taxpayer's income for a preceding taxation year;

[17]          In this situation the Separation Agreement dated the 28th day of October 1994 has never been amended or replaced and the child support payments made to the Appellant in 1999 were made pursuant to that agreement. It therefore follows that the old tax régime remains in place and the Appellant is required to include the amount of $8,460.00 in determining her income for the 1999 taxation year.

[18]          From the facts that were presented to me by the Appellant I regard this as a difficult situation and I reluctantly must dismiss the appeal. However, I have to interpret the law as I find it.

[19]          If the Appellant wishes to come under the new régime with regard to child support payments she must enter into a new agreement with her Husband which provides for a commencement day after May 1997. If she is unable to convince her Husband to agree to sign a new separation agreement she should obtain a Court Order from a British Columbia Court.

[20]          The appeal is dismissed.

Signed at Vancouver, British Columbia, this 31st day of October 2002.

"L.M. Little"

J.T.C.C.

COURT FILE NO.:                                                 20002-1476(IT)I

STYLE OF CAUSE:                                               Kelli Marie Clemens and

                                                                                                Her Majesty the Queen

PLACE OF HEARING:                                         Kelowna, British Columbia

DATE OF HEARING:                                           August 20, 2002

REASONS FOR JUDGMENT BY:      The Honourable Judge L.M. Little

DATE OF JUDGMENT:                                       October 31, 2002

APPEARANCES:

For the Appellant:                                                 The Appellant herself

Counsel for the Respondent:              Jasmine Sidhu

COUNSEL OF RECORD:

For the Appellant:                

Name:                               

Firm:                 

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

2002-1476(IT)I

BETWEEN:

KELLI MARIE CLEMENS,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on August 20, 2002 at Kelowna, British Columbia, by

the Honourable Judge L.M. Little

Appearances

Counsel for the Appellant: The Appellant herself

Counsel for the Respondent:              Jasmine Sidhu

JUDGMENT

                The appeal from the assessment made under the Income Tax Act for the 1999 taxation year is dismissed in accordance with the attached Reasons for Judgment.

Signed at Vancouver, British Columbia, this 31st day of October 2002.

"L.M. Little"

J.T.C.C.