Date: 20020228
Docket: 2001-2583-IT-I
BETWEEN:
ALFRED R. GROLEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Rip, J.
[1]
The issue in this appeal by Alfred R. Groleau from an income tax
assessment for 1999 is whether he is entitled to deduct, in
computing his income, the amount of $14,000 he paid to his former
spouse, Ms. Joanne Facette, as a child support payment pursuant
to paragraph 60(b) of the Income Tax Act
("Act"). The appellant says the amount is
deductible since it was "a full and final payment of arrears
of child support under [a] judgment of 1991" of the Ontario
Court (General Division) requiring him to pay his former spouse
$200 per month as support for their two children.
[2]
Mr. Groleau and Ms. Facette divorced on December 10, 1986
pursuant to an order of the Quebec Superior Court. During the
marriage they had two children, Joanne Angel born on March 16,
1977 and Alfred Richard born on February 14, 1980. Ms. Facette
had custody of the children.
[3]
By order of the Quebec Superior Court dated May 23, 1986,
Mr. Groleau was required to pay to his former spouse as
support for their children the sum of $100 per month starting May
1, 1986, ("Order No. 1" paragraph 3).[1] All arrears of support payments
accumulated to April 30, 1986 were cancelled.
[4]
The Ontario Court (General Division) by Order dated July 22, 1991
varied the judgment of the Quebec Superior Court by increasing
Mr. Groleau's "obligation to pay support for the
children of the marriage . . . from $100 per month to $200 per
month". ("Order No. 2" paragraph 1).
[5]
As of April 1, 1999, the amount of child support that
Mr. Groleau was required to pay to his former spouse
pursuant to Order No. 2 had fallen into arrears of $19,808.
[6]
Mr. Groleau applied to the Ontario Court (General Division) for a
variation of Order No. 2 to cancel all arrears and ongoing child
support. Eventually Mr. Groleau and Ms. Facette agreed to
settle the action. Among other things, Mr. Groleau and Ms.
Facette agreed in Minutes of Settlement that upon payment by him
to her of the sum of $14,000, ". . . all arrears accumulated
under the Judgment dated July 22, 1991 [Order No. 2] shall be
cancelled" and that since neither child was at the time a
"child of the marriage", as defined by the Divorce
Act, 1985, Mr. Groleau no longer had any obligation
towards his former wife.[2] On May 10, 1999 the Ontario Court confirmed the
agreement and ordered that the arrears of child support under
Order No. 2 "are fixed at $14,000" ("Order No.
3"). Mr. Groleau paid the $14,000 to his former spouse
in 1999.
[7]
Mr. Groleau testified that he offered to pay Ms. Facette $14,000
to extinguish the existing child support arrears of $19,808 and
release him from any continuing liability. The $14,000, he
calculated, represented the amount he actually owed her up to the
time each of the children turned age 18. In his view, once a
child attained the age of 18 years, he was no longer liable to
pay support to his former wife for that child. The initial
divorce decree and subsequent Court Orders did not address the
"cut-off" date for child support.
[8]
Ms. Facette saw the payment as a "cash out" or
"buy out", it was less than what she was owed. She said
she accepted the offer because the appellant was in
"difficult straits" and their daughter was
"pressuring" her to settle.
[9] The
position of the Minister of National Revenue
("Minister") is that the $14,000 payment was a final
settlement in regard to the appellant's support requirements
described in Order No. 2 and released the appellant from any
further obligations to pay support. The payment was a lump sum
payment made pursuant to Order No. 3 and not to
Order No. 2. The $14,000 was not paid as an allowance
on a periodic basis for the maintenance of the children of the
marriage as required under paragraph 60(b) of the
Act.
[10] Paragraph
60(b) provides that:
There may be deducted in computing a taxpayer's income for a
taxation year such of the following amounts as are
applicable:
(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
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;
[11] The terms
"child support amount", "commencement
day" and "support amount" are defined
in subsection 56.1(4) of the Act:
"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 common-law partner or former spouse
or common-law partner 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 common-law partner
or former spouse or common-law partner of the payer, the
recipient and payer are living separate and apart because of the
breakdown of their marriage or common-law partnership 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.
[12]
Respondent's counsel relied on M.N.R. v. Armstrong, 56
DTC 1044 (S.C.C.), to support the assessment. In
Armstrong, the divorce decree provided for the payment of
$100 per month to the taxpayer's wife for the maintenance of
their daughter. The payments ordered were made until that time
where the wife accepted a lump sum of $4,000 in full settlement
of all amounts payable in the future. In concluding that the
payment of $4,000 did not fall within the terms of paragraph
60(b) of the Act, Kellock J. relied on the fact
that the sum "... was not an amount payable pursuant
to" or "conformément à" (to refer to
the French text) the decree but rather an amount paid to obtain a
release from the liability thereby imposed."[3] As Locke J. stated, the amount
was ". . . paid in consequence of the liability imposed by
the [divorce] decree for the maintenance of the infant . .
.", but was not paid pursuant to the divorce decree.[4]
[13] Counsel
also referred to the decision of my colleague Judge Mogan in
Widmer v. Canada, [1995] T.C.J. No. 1115 (Q.L.). In
Widmer, the taxpayer accepted a $15,000 settlement from
her former spouse in lieu of the $26,000 owed to her for
outstanding child support payments. The Minister included the
$15,000 in the taxpayer's income. The taxpayer argued that
the payment was neither a periodic payment nor a maintenance
payment but was a lump sum settlement and therefore was not to be
included in her income. My colleague stated at paragraph 15
that:
. . . When the amount actually received ($15,000) is so
different from and so much smaller than the amount owed
($50,590), I cannot regard the amount received as having the same
character as the amount owed. In other words, I cannot regard the
$15,000 amount received by the Appellant as having been received
for the maintenance of the three children. In my opinion, this
small amount was paid by David in one lump sum firstly, to obtain
a release from his very real liability to pay the remaining
$35,590, and secondly, to obtain a reduction in the aggregate
amount of his monthly maintenance payments from $795 per month to
$600 per month. In summary, the $15,000 amount was paid to obtain
a release from existing obligations and a reduction in future
obligations, and not for the maintenance of the three
children.
[14]
Respondent's counsel distinguished the facts at bar from the
facts in Soldera v. M.N.R, [1991] T.C.J. No. 142 (Q.L.).
In Soldera, the taxpayer was initially ordered to pay $200
per month in child support. The order was subsequently varied
after the payments fell into arrears to provide for $100 per
month plus $7,500 in arrears. After the taxpayer made the payment
in arrears, the Minister disallowed the $7,500 deduction on the
basis that it was not a periodic payment for the purposes of
paragraph 60(b) of the Act. Judge Garon (as he then
was) determined that the lump sum payment was deductible because
it merely crystallized the amounts due periodically under the
first order and really represented a portion of the arrears of
maintenance payments that were an allowance payable "on a
periodic basis" under paragraph 60(b). It was also
noted that the taxpayer had not been released from any existing
or future liability in respect of the maintenance of his
children.
[15] In the
present case, it is clear that the appellant approached his
former spouse and offered to pay her $14,000 to extinguish the
already existing child support arrears of $19,808 and to release
him from any continuing liability under Order No. 2. Hence,
the payment of the $14,000 could not be said to be an allowance
payable on a periodic basis for the maintenance of the children
of the marriage as required under paragraph 60(b) and is
not deductible. The lump sum payment in Soldera
represented approximately what the taxpayer was required to pay
under a previous order and there was no extinguishment of present
or future obligations. I agree that Armstrong and
Widmer support the assessment.
[16]
Respondent's counsel also submitted that even if the $14,000
payment is found to be a "support amount", the formula
in paragraph 60(b) of the Act would deny the
appellant from deducting the $14,000 from his income.
[17] Prior to
April 1997, child support payments were deductible to the payor
and included in the income of the recipient. Following the 1997
amendments to the Act, child support amounts that became payable
under an agreement on or after its commencement day, as defined
in subsection 56.1(4), are not deductible from the payor's
income. This was explained by Bowman A.C.J. in Kovarik v.
Canada, [2001] T.C.J. No. 181 (Q.L.) as follows at 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] In
O'Neill v. Canada, [2001] T.C.J. No. 429 (Q.L.), the
appellant made monthly payments to his former spouse for child
support. The payments were made pursuant to a written Separation
Agreement dated September 1, 1995, that was amended on three
occasions: May 6, 1996, July 1, 1997 and January 1, 1998. The
January 1, 1998 agreement increased the child support amounts
payable to the recipient. In O'Neill, I stated
that:
9. What must
be determined is whether the amounts paid by Mr. O'Neill
during the 1998 taxation year were child support amounts within
the meaning of the Act and if so, whether they were payable on or
after the agreement's commencement day within the meaning of
the Act.
10. The definition of
"child support amount" in subsection 56.1(4), provides
that each amount of support payable under an agreement or order
that is not identified in the agreement as being solely for
spousal support is an amount payable for child support. It would
follow that the amounts paid by the appellant are child support
amounts within the meaning of the Act.
11. The definition of
"commencement day" in subsection 56.1(4) applies to the
facts at bar: when after April 1997, a written agreement made
before May 1997 is varied 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 becomes the commencement
day. The original written agreement was made on September 1,
1995, that is, before May 1997. However, it was finally varied on
January 1, 1998 to change the child support amounts payable to
the recipient, beginning on January 1, 1998. Whether the
appellant and his former spouse intended to modify the tax
treatment of the support amounts when they varied their agreement
is not relevant. As stated by Bowman A.C.J. in Kovarik, supra, at
paragraph 15, "[the] definition of commencement day in
subsection 56.1(4) is not difficult to understand... . I do not
see how the plain words of the definition can be avoided, however
sophisticated the rules of statutory interpretation one may
choose to use may be". The child support amounts paid in
1998 were therefore paid on or after the agreement's
commencement day in respect of a period that began on or after
its commencement day. It would follow that these amounts are not
deductible from the appellant's income.
[19] If I had
determined above that the $14,000 payment was a "support
amount", it would follow that the payment would also be a
"child support amount", as Order No. 3 does
not state that the payment was solely for the appellant's
former spouse. It is clear that Order No. 3 varied Order No. 2
and that the $14,000 was payable under Order No. 3, which was
dated May 10, 1999. Therefore, the $14,000 became payable by the
appellant to his former spouse on or after its "commencement
day" and if the $14,000 were a child support amount, it
would not be deductible from the appellant's income by reason
of paragraph 60(b)(B).
[20] The
appeal is therefore dismissed.
Signed at Ottawa, Canada, this 28th day of February 2002.
"Gerald J. Rip"
J.T.C.C.
COURT FILE
NO.:
2001-2583(IT)I
STYLE OF
CAUSE:
Alfred R. Groleau v. The Queen
PLACE OF
HEARING:
Ottawa, Ontario
DATE OF
HEARING:
January 21, 2002
REASONS FOR JUDGMENT
BY:
The Honourable Judge G.J. Rip
DATE OF
JUDGMENT:
February 28, 2002
APPEARANCES:
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Gabrielle St-Hilaire
Justine Malone
COUNSEL OF RECORD:
For the
Appellant:
Name:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-2583(IT)I
BETWEEN:
ALFRED R. GROLEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on January 21, 2002 at Ottawa,
Ontario, by
the Honourable Judge Gerald J. Rip
Appearances
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Gabrielle St-Hilaire
Justine Malone
JUDGMENT
The
appeal from the assessments made under the Income Tax Act
for the 1999 taxation year is dismissed.
Signed at Ottawa, Canada, this 28th day of February 2002.
J.T.C.C.
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