Milliron v. The Queen, docket 2001-3587-IT-I (Informal Procedure)

Date: 20020515

Docket: 2001-3587-IT-I

BETWEEN:

MARK MILLIRON,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasonsfor Judgment

Little, J.

[1]            In this appeal the Appellant claims the following deductions in the years indicated:

                1998                                       1999

                Child Support                        $4,800                      $4,520

                Spousal Support                   $2,400                      $2,400

[2]            The facts may be summarized as follows:

                (a)            The Appellant, Mark Milliron, and Gwyneth Jones ("Former Spouse") are the parents of Megan Milliron, born June 26, 1984 ("Megan") and Kristen Milliron, born May 21, 1987 ("Kristen");

(b)            The Appellant and the Former Spouse commenced living separate and apart on or about May 18, 1996;

(c)            On September 23, 1996, the Supreme Court of British Columbia issued an Interim Order which provided for the payment by the Appellant of child and spousal support;

(d)            On February 27, 1997, the Appellant and the Former Spouse executed a separation agreement ("Agreement") which Agreement was filed with the Provincial Court of British Columbia;

(e)            Clause 11 of the Agreement required the Appellant to pay the Former Spouse $500 per month for Megan and $300 per month for Kristen for their maintenance and support until the Former Spouse remarried or was employed in a single full-time job or until December 1997, whichever came first;

(f)             The Agreement also required the Appellant to pay spousal support of $200 per month to the Former Spouse;

(g)            On December 22, 1997, the Appellant and the Former Spouse executed a new agreement ("Second Agreement") which reduced the child support payments beginning November 15, 1997;

(h)            The Second Agreement required the Appellant to pay $250 per month for Megan and $150 per month for Kristen;

(i)             The Second Agreement also reduced the spousal support to nil, but provided for the payment of an education allowance of $200 per month to be paid to the Former Spouse until June 30, 1999 or until her educational expenses were completed, whichever came first;

(j)             In computing his income for the 1998 taxation year the Appellant claimed child support payments of $4,800 and spousal support payments of $2,400;

(k)            In computing his income for the 1999 taxation year the Appellant claimed child support payments of $4,520 and spousal support payments of $2,400;

(l)             By Notice of Reassessment dated June 24, 1999, the Minister of National Revenue ("Minister") initially assessed the Appellant for the 1998 taxation year to disallow $4,800 claimed by the Appellant on account of child support;

(m)           By Notice of Reassessment dated September 14, 1999, the Minister reassessed the Appellant for the 1998 taxation year to disallow $2,400 claimed by the Appellant on account of spousal support;

(n)            By Notice of Reassessment dated October 12, 1999, the Minister allowed the child and spousal support deductions claimed by the Appellant in the 1998 taxation year;

(o)            By Notice of Reassessment dated October 17, 1999, the Minister again disallowed the child and spousal support deductions in question for the 1998 taxation year;

(p)            By Notice of Reassessment dated April 26, 2000, the Minister assessed the Appellant for the 1999 taxation year to disallow $4,520 claimed by the Appellant on account of child support.

[3]            The issues in this appeal are whether the Appellant is entitled to deduct the child support and spousal support payments that were claimed by him in the 1998 and 1999 taxation years.

A. CHILD SUPPORT PAYMENTS

[4]            Subsection 56.1(4) of the Income Tax Act (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.

[5]            "Support" in 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;

[6]            Under the former rules in the Act (pre-May 1997) a spouse making support payments to the ex-spouse or for the support of children could deduct those payments and the recipient had to include the payments as income. Following the decision of the Supreme Court of Canada in Thibaudeau v. Canada, [1995] 2 S.C.R. 627, the legislation was amended. So long as a pre-May 1997 agreement remained unchanged the deduction/inclusion system under the former legislation applied.

[7]            If a new agreement was entered into or an old agreement was changed in a particular way, the deduction/inclusion regime ceased and only payments made up to the "commencement day" as defined, were deductible by the payer and included in the income of the payee.

[8]            The Appellant contends that the definition of "commencement day" in subsection 56.1(4) of the Act does not apply and that the limitation contained in paragraph 60(b) of the Act does not apply. The Appellant maintains that the Second Agreement dated December 22, 1997 to have effect from November 15, 1997 was prepared in response to a binding requirement placed on the Appellant and his ex-spouse by the Separation Agreement. The Appellant says in his submission:

The December, 1997 document merely enacted that change and does not represent a variation, order or new agreement.

[9]            It will be noted that the definition of "commencement day" quoted above is very broad and it would apply to "new agreements" or variations of agreements where the child support amount payable to the recipient is changed. In this situation the Second Agreement clearly changed the child support amount payable to the ex-spouse for the two children.

[10]          I have concluded that the definition of "commencement day" is broad enough to apply to this situation.

[11]          It therefore follows that the Appellant is caught by the amended legislation in section 56.1 of the Act and he is not allowed to deduct the child support payments.

B. SPOUSAL SUPPORT

[12]          The Second Agreement states that spousal support has been discontinued. Because of the specific wording contained in the Second Agreement the Appellant is not entitled to deduct any amount for spousal support.

[13]          I regard this as a difficult decision and I reluctantly must dismiss the appeal. However, I have to interpret the law as I find it.

Signed at Vancouver, British Columbia, this 15th day of May 2002.

"L.M. Little"

J.T.C.C.

COURT FILE NO.:                                                 2001-3587(IT)I

STYLE OF CAUSE:                                               Mark Milliron and

                                                                                                Her Majesty the Queen

PLACE OF HEARING:                                         Vancouver, British Columbia

DATE OF HEARING:                                           March 28, 2002

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

DATE OF JUDGMENT:                                       May 15, 2002

APPEARANCES:

For the Appellant:                                                 The Appellant himself

Counsel for the Respondent:              Nadine Taylor

COUNSEL OF RECORD:

For the Appellant:                

Name:                               

Firm:                 

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

2001-3587(IT)I

BETWEEN:

MARK MILLIRON,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on March 28, 2002 at Vancouver, British Columbia, by

the Honourable Judge L.M. Little

Appearances

For the Appellant:                      The Appellant himself

Counsel for the Respondent:      Nadine Taylor

JUDGMENT

          The appeal from the assessment made under the Income Tax Act for the 1998 and 1999 taxation year is dismissed in accordance with the attached Reasons for Judgment.

Signed at Vancouver, British Columbia, this 15th day of May 2002.

"L.M. Little"

J.T.C.C.