[OFFICIAL ENGLISH TRANSLATION]
Date: 20020117
Docket: 2000-2446(IT)I
BETWEEN:
MARIE ROY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] This is an appeal for the 1996 and
1997 taxation years. The point for determination is whether
payments totalling $9,766 for 1996 and $9,912 for 1997 were paid
to the appellant by her former spouse on a periodic basis as
alimony or other allowance payable on a periodic basis for the
maintenance of the children of their marriage.
[2] After being sworn, the appellant
admitted a number of the alleged facts assumed at the time of the
determination. In particular, the facts admitted are as
follows:
[TRANSLATION]
(a) from the
application for "Order Varying Corollary Relief" filed in
Superior Court on August 11, 1998, the following information
was noted:
(i) the
appellant and François Langlois (hereinafter the
"former spouse") have been divorced since October 20, 1989,
and the certificate of divorce was issued on November 20,
1989;
(ii) two children
were born from that union: Annabelle on May 29, 1979, and
Alexandre on October 17, 1987;
(iii) under the divorce
decree, custody of the two children was awarded to the appellant
and monthly support from the former spouse for his two children
was fixed at $660, indexed in accordance with the act;
(iv) following the divorce
decree, a number of judgments varying corollary relief were
rendered, including one dated July 15, 1992, granting the
former spouse custody of his minor daughter Annabelle;
(v) on
April 20, 1993, a variation order was made providing that
Annabelle would return to live with the appellant and that the
support fixed at the time the divorce decree was made would once
again be in effect;
(vi) subsequently, on
December 30, 1993, an arbitration award was made
recommending that support for the two minor children be fixed at
$1,100 a month;
(vii) although the appellant
filed an application for homologation of that arbitration award,
on May 3, 1994, the Honourable Judge Jacques Philippon
of the Superior Court refused to homologate it;
(b) in the
"Variation Order" case heard on April 20, 1993, the
Honourable Judge Jean Richard ratified an agreement between
the parties and issued an interim order in accordance with the
following terms:
(i) the
parties agree to submit their dispute to an arbitrator;
(ii) the parties
further agree to waive their right to dispute the arbitrator's
report, which will be final and which must be homologated in
order to be binding;
(iii) the divorce decree
(respecting custody and support) is extended, the whole
retroactive to February 1, 1993;
(c) the decisive
reasons given by the Honourable Judge Philippon in his
judgment for denying the application described in
paragraph 9(a)(vii) above are as follows:
(i) the
withdrawal of the right of appeal in an incidental arbitration
process (arbitration by advocates);
(ii) the waiver of
court transcripts stipulated in the arbitration mandate is
inconsistent with the right of appeal; furthermore,
acknowledgement that the arbitrator's decision is final is more
suited to independent arbitration;
(iii) it must therefore be
concluded that, in the absence of an essential attribute, there
is no further reason to analyze the determination of questions
that might be submitted for incidental arbitration;
(iv) the Court accordingly
dismisses the application with costs;
(d) the amounts of
$9,766 in 1996 and $9,912 in 1997 were paid to the appellant by
her former spouse on a periodic basis as alimony or other
allowance payable on a periodic basis for the support of the
children of their marriage and the appellant was able to use
those amounts at her discretion.
[3] The appellant filed a number of
documents and copies of various pleadings, all prepared in the
context of the divorce proceedings regarding her marriage to her
spouse, François Langlois.
[4] The voluminous documentary
evidence shows how difficult the appellant's relations with her
former spouse were at the time of the divorce.
[5] The delays and numerous
proceedings undoubtedly contributed to the Honourable Judge
Jean Richard's recommendation to the appellant and her
spouse that they resort to a more appropriate means of resolving
their problem. He thus suggested that they seek mediation or
arbitration, as appears from the following passage
(Exhibit A-1):
[TRANSLATION]
Honourable Jean Richard, S.C.J.
. . .
EXCERPT FROM THE TRANSCRIPT OF THE HEARING OF APRIL 20,
1993
The Court:
But I would suggest to you, I could suggest to you a name,
and . . . to whom you will go and agree to accept
his decision as final.
. . . go get a decision that is final, that cannot
be appealed, to the extent, obviously, that you trust
Salomon.
It will be a certain Salomon, and that will . . .
and, not within legal proceedings, not within the
Court . . .
Gilles L'écuyer:
I think your suggestion is a very good one; that would enable me
to withdraw from this case; I am not . . . doing my client a
favour, and someone with experience, an experienced lawyer,
as . . . you suggested, moreover; and that settled
the matter - they resolved the problem.
The Court:
It was a poisonous problem . . .
Gilles L'écuyer:
. . . they each met with the mediator a couple of
times, and the case was settled, because I have since spoken to
both parties, Your Honour, and they told me: "It's settled; it's
over."
The Court:
. . . inaudible . . .
Gilles L'écuyer:
For the defence:
We have . . . we have . . .
The Court:
. . . settled; I have never heard about it
again . . .
. . . and I am obliged to withdraw from the case
because they never even had the decision homologated,
and . . .
The Court:
. . . Nearly final; that may be more economical than
to go back to Court, and to return to Court, to lose work, to
lose income, to pay fees if there's a lawyer on one side or the
other, or if there are two lawyers.
In any case, I would try.
I would try if you think it is worth the trouble to try and
have the matter decided by someone practical, in the know, who
knows the profession, who knows the Court, who knows family law,
who knows the law in general, . . .
. . .
The Court:
No, no, but I'm not suggesting that you start agreeing on a
list of mediators.
I would recommend you someone and you could take the time to
inquire - that's for certain - and, then, you would agree before
me - and it would be entered in the record - to go to arbitration
or mediation before that person - in fact, it is an arbitration -
and you would waive your right to contest, to appeal - you have
to have faith - you would waive your right to appeal from that
decision.
. . .
And, personally, I'm convinced that that kind of work, in certain
cases - I'm not saying this is the case here - is perhaps much
more satisfying for the parties than a judgment, much more
satisfying, less costly, less costly in time, energy, emotions,
you know, in . . .
[6] The parties in fact gave
Alain Turgeon an arbitration mandate on July 14, 1993.
That mandate was followed by a very elaborate award signed by the
arbitrator on December 30, 1993. The excerpt from the
arbitration award concerning the issue of alimony is reproduced
as follows (Exhibit A-1):
[TRANSLATION]
Arbitration Award
. . .
Lastly, with respect to the vacation item, Ms. Roy claims
$4,500 annually, that is $375 a month. That amount is probably an
ideal situation, but, in view of the circumstances, the parties
are perhaps not in a position to assume such an ideal, and the
vacation item is accordingly set at $2,000 a year for
Ms. Roy and the children, having regard to the fact that if
Mr. Langlois decides to take the children on vacation, he
will have to be responsible for them. That amount accordingly
represents a monthly expense of $166 for a net grand total of
needs of $2,216 a month for that item.
Having regard to the evidence as a whole, the needs, the means,
the new situation of the parties and, more particularly, that of
Mr. Langlois; having regard to the fact that the children
are entitled to a standard of living consistent with the means of
the entire family unit; having regard to the fact that
Ms. Roy is more present and is more involved in the
maintenance and upbringing of the children than
Mr. Langlois, the undersigned considers that net support of
$1,300 a month must be paid by Mr. Langlois and Ms. Roy
for the children until the end of Ms. Roy's sick leave, and
$1,100 a month net of tax once Ms. Roy returns to her
teaching duties on a full-time basis.
FOR THESE REASONS, THE UNDERSIGNED:
(A) DISMISSES the application
for suspension of payment of support for August, September,
October and November 1993;
(B) ARBITRATES AND DECLARES
that the said support will be indexed starting on January 1,
1995;
(C) ORDERS Ms. Roy to
provide the respondent with all information on the academic
results and health of the children Annabelle and Alexandre.
(D) CERTIFIES OFFICIALLY the
declaration of the parties that each of them will take charge of
a minor child - Mr. Langlois, the minor child Annabelle and
Ms. Roy, the minor child Alexandre.
(E) ACKNOWLEDGES the
declaration of the parties that the said support is not taxable
in the hands of Ms. Roy or deductible in the hands of Mr.
Langlois;
(F) FIXES the support payable
from February 1, 1993, to December 1, 1993, at $710.85
monthly;
(G) FIXES support at $1,300
net per month starting on December 1, 1993, for the duration
of Ms. Roy's sick leave and at $1,100 net per month as soon
as she returns to her teaching duties on a full-time basis;
(H) ORDERS Ms. Roy to
keep Mr. Langlois informed, as need be;
(I) CERTIFIES
OFFICIALLY the parties' judicial declaration that this decision
shall be homologated by the Court;
(J) The parties will
pay the costs in accordance with the mandate.
Québec, this 30th day of December 1993.
Alain Turgeon
[7] The appellant testified that she
and her spouse had subsequently complied with the arbitration
award to the letter with respect to support.
[8] Counsel for her former spouse
moreover confirmed this assessment, the whole as appears from a
letter dated January 21, 1994, which reads as follows
(Exhibit A-1):
[TRANSLATION]
. . .
Francine Veilleux
. . .
SUBJECT: FRANÇOIS
LANGLOIS
C. MARIE ROY
. . .
Our client has confirmed to us that he has paid in full the
amounts established by Alain Turgeon in his arbitration
award of December 23, 1993,* through bank transfers directly into
his former spouse's account, and he furthermore informs us that
he intends to continue complying with the said arbitration award
voluntarily.
Out of principle, and for obvious reasons, we reiterate our
request that you do not attempt to have this arbitration award
homologated, as your client appears to wish, since there is no
longer any dispute between our respective clients. This will
prevent us from having to make our clients incur additional
expenses and to have to raise the Court's authority or
jurisdiction to receive such an application for homologation.
The client's interest in having that decision homologated is
not present or real, and this effort of ours is made in the
context of the agreement we have reached to cease pointless and
vindictive proceedings.
We are therefore counting on your reviewing your client's
position indicated in your letter dated January 21,
1994.
We hope to hear from you soon.
Sincerely yours,
Lawyers Vézina Pouliot,
. . .
[9] Not subscribing to the suggestion
of her former spouse's counsel and wishing to obtain more formal
guarantees, the appellant applied for judicial confirmation and
homologation of the arbitration award's conclusions.
[10] Although the Court refused to confirm
or homologate the said arbitration award for reasons not relevant
to the instant case, the parties always complied faithfully with
the conclusions until Annabelle's majority, after which her
father deposited the amount directly in her bank account.
[11] Annabelle indeed admitted in her
testimony that she had received the amount stated in the decision
from the moment she reached her majority.
[12] The Minister of National Revenue (the
"Minister") appears to claim that since the arbitration award was
not homologated, the parties were governed in 1996 and 1997 by
Judge Richard's interim order made on April 20, 1993.
The Minister contends that the amounts paid to the appellant by
her former spouse were paid as alimony or other allowance payable
on a periodic basis for the maintenance of the children of the
marriage, and the appellant had discretion as to the use of those
amounts. The Minister contends that the amounts paid to the
appellant by her former spouse were paid under the scheme of
inclusion and deduction of alimony to a maximum of the amount
provided for in the interim order made by the Honourable
Judge Richard.
[TRANSLATION]
Interim Order
The divorce judgment (respecting custody and alimony) is
extended, the whole retroactive to February 1, 1993. The
Court allows a period of two months for repayment of arrears
in addition to the appended alimony.
[13] The appellant contends that the scheme
provided for in the Income Tax Act (the "Act") for
the inclusion and deduction of amounts paid as alimony does not
apply to the amounts that were paid to her by her former spouse
on a periodic basis during the 1996 and 1997 taxation years.
[14] In the appellant's view, those amounts
were not paid under a court order or written agreement. She
contends that Judge Richard's interim order dated
April 20, 1993, was not enforceable in 1996 and 1997 since
it was an interim measure whose term was limited in time. The
appellant contends that the amounts paid to her by her former
spouse during those years were paid under an informal oral
agreement to which the scheme of inclusion and deduction is not
applicable.
[15] Since the application for homologation
of the arbitration award dated December 30, 1993, was denied
on May 3, 1994, that award was not binding. The appellant
adds that the amounts that were paid to her in 1996 and 1997 were
paid under the terms of that arbitration award on a consensual
basis, but without there being a written agreement to that
effect.
Analysis
[16] At the time the appellant received the
amounts in issue in 1996, the applicable provisions of the
Act read as follows:
56(1) Without restricting the generality of
section 3, there shall be included in computing the income
of a taxpayer for a taxation year,
. . .
(b) Alimony -
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;
(c)
Maintenance - an amount received by the taxpayer in the year as
an allowance payable on a periodic basis for the maintenance of
the taxpayer, children of the taxpayer or both the taxpayer and
the children if
(i) at the time the amount was received and
throughout the remainder of the year the taxpayer was living
separate and apart from the person who was required to make the
payment,
(ii) the person who was required to make the payment is
the natural parent of a child of the taxpayer, and
(iii) the amount was received under an order made by a
competent tribunal in accordance with the laws of a province;
56(12) Definition of "allowance"
Subject to subsections 56.1(2) and 60.1(2), for the
purposes of paragraphs (1)(b), (c) and
(c.1) (in this subsection referred to as the "former
paragraphs") and 60(b), (c) and (c.1) (in
this subsection referred to as the "latter paragraphs"),
"allowance" does not include any amount that is received by a
person, referred to in the former paragraphs as "the taxpayer"
and in the latter paragraphs as "the recipient", unless that
person has discretion as to the use of the amount.
[17] In 1997, the provisions of the
Act concerning the scheme of inclusion and deduction of
alimony were amended. The provisions applicable to the amounts
received in 1997 read as follows:
56. (1) Amounts to be included in income for year -
Without restricting the generality of section 3, there shall
be included in computing the income of a taxpayer for a taxation
year,
(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 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
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;
56.1 (4) Definitions - The definitions in this
subsection apply in this section and section 56.
"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
. . .
(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, . . .
"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.
"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.
[18] For the scheme of inclusion and
deduction of alimony to be applicable to the amounts received in
1996 and 1997, the following three conditions must have been
met:
(1) the amounts must have been paid to
the appellant by her former spouse under an order of a tribunal
or under a written agreement;
(2) the amounts must have been payable
on a periodic basis;
(3) the appellant had to have
discretion as to the use of the amounts.
[19] The case essentially turns on the
question whether the amounts in issue were paid under an order of
a tribunal or under a written agreement.
Order of a Tribunal or Written Agreement
[20] For the inclusion and deduction of
alimony to apply, the amounts must be received under an order of
a tribunal or under a written agreement and the payments must be
consistent with the obligation that imposed them. A payment is
consistent with an order of a tribunal or with a written
agreement if it is made in accordance with the legal obligation
created in that order or agreement.[1]
[21] In Canada v. Sigglekow[2] (referred to
by counsel for the Minister), the Court held that the amounts
paid by a former spouse as alimony under an order of a tribunal
or under a written agreement fell within the scheme of inclusion
notwithstanding that those payments did not correspond to the
amounts in the order or written agreement. However, the Court
found that the scheme of inclusion and deduction applied to the
amounts paid only up to the amounts provided for by the order or
agreement under which they were paid.[3]
[22] The circumstances of the instant appeal
may be distinguished from those in Sigglekow in that, in
this appeal, the appellant is not submitting that the amounts she
received in 1996 and 1997 do not fall within the
inclusion/deduction scheme because they do not correspond to the
amounts provided for in Judge Richard's interim order.
Instead, the appellant's argument is that Judge Richard's
order was not enforceable and consequently, that the amounts she
received in 1996 and 1997 were not paid under that order.
[23] In Monette v. M.N.R.,[4]
Judge Garon, as he then was, held that, for the scheme of
inclusion and deduction of alimony to be applicable, it is not
necessary that the amounts payable as an allowance be precisely
determined in the order or agreement under which they are paid.
In so concluding, Judge Garon wrote as follows at
page 6:
I therefore conclude that a taxpayer may deduct
an amount paid during the year in the circumstances set out in
paragraph 60(b) even if the amount in question was
not predetermined in the judgment or written agreement, as the
case may be, provided that such amount may be determined
subsequently or, in other words, is determinable.
[24] In the instant case, it must be
determined whether the amounts paid to the appellant by her
former spouse were paid under Judge Richard's interim order.
That order was made in the context of the hearing of an
application for an order varying accessory relief as a result of
the divorce.[5] The
judge before whom an application is filed in a family matter may
"make any order required in the interest of justice".[6] The power to make an
interim order at a hearing of such an application is provided for
in article 22.1 of the Rules of Practice of the Superior
Court of Québec in Family Matters ("R.P.S.C.Q.F.M."),
which reads as follows:
22.1 If the Court is unable to hear immediately or to conclude
the hearing of an application for accessory relief, or any
variation thereof, and there is urgency, it may make an interim
order on the strength of the affidavits, the documents filed and
the representations of the parties.
[25] The primary object of
Judge Richard's order was that the former spouses should
appear before an arbitrator to resolve their differences, in
particular with respect to the support that should be paid to the
appellant. The honourable judge determined the support obligation
for a specific and limited period of time. The former spouses
agreed that the arbitration award would be final, and
Judge Richard further ordered that it would be homologated
by a competent tribunal.
[26] Judge Richard's order had a second
component: the interim order fixing support for the appellant in
the amount of $660 a month, which corresponded to the amount
fixed in the divorce decree. In general, an interim order is
rendered under article 22.1 of the R.P.S.C.Q.F.M. to
meet the needs of the party that benefits from it until the
application is heard on the merits. However, in the instant
appeal, the interim order appears to be ancillary to the final
judgment rendered by Judge Richard since it was delivered in
order to provide for the needs of the appellant and the child
until the arbitration award was rendered. Although this was not
expressly stated, it may be inferred from the transcript of the
hearing of the application that the interim order made by
Judge Richard was a term order (as the appellant contends)
and that the term was the arbitration award.
[27] Articles 382 to 394 of the Code
of Civil Procedure of Québec (the "Code")
provide for the right of the parties to a case to request to be
referred to an arbitrator and request the applicable
procedure:
382. The court may, at the request of
the parties, refer a case to the decision of one or more
arbitrators selected by them, who must be practising advocates or
retired judges.
The demand for an arbitration must be signed by the parties
themselves and must contain the names of the arbitrators, their
consent to act and the amount of the remuneration that the
parties undertake jointly and severally to pay to them.
. . .
385. The provisions of Sections
III, IV, V and VI of Chapter I of Title V of
Book Two, as to the summoning and examination of witnesses,
the taking down of their evidence and the order of trial, apply
to the trial before the arbitrators.
386. The arbitrators must make their
award in writing, in the form of a judgment of the court; if they
are not unanimous, those who dissent must give their reasons for
so doing.
. . .
388. The award has no effect unless
homologated by the court, on motion of one of the parties.
The court, seized of such motion, cannot inquire into the merits
of the case, but only into the grounds of nullity which may
affect the award. If it finds that any formality which has been
omitted may be remedied without injustice to the parties, it may
make such order as it considers necessary under the
circumstances.
. . .
393. The award, when homologated, may
be appealed like any judgment of the Superior Court.
394. The provisions of this chapter do
not apply when the parties do not have the power to transact or
when some matter of public interest is involved; nor do they
apply to applications relating to filiation or to deprivation or
restoration of parental authority, to applications for separation
as to bed and board, in nullity of marriage or for divorce, for
dissolution of corporations or to annul letters patent.
[28] According to Judge Richard, once
the arbitration award has been made, homologation would be a mere
formality necessary to render the arbitrator's report binding.
Article 388 of the Code provides that the arbitration
award "has no effect unless homologated by the Court, on motion
of one of the parties". The interim order ceased to be binding
the moment the arbitration award was made; consequently, the
amounts paid to the appellant cannot fall within the scheme of
inclusion and deduction of alimony on the basis of that interim
order.
[29] Even though the arbitration award was
not homologated, the parties voluntarily and verbally complied
with its terms. The appellant must take action against her former
spouse in case of non-payment and cannot simply take the
enforcement action available where a judgment or court order has
been infringed.
[30] It is indisputable that the amounts
paid to the appellant by her former spouse during 1996 and 1997
were paid in accordance with the arbitration award. That is
apparent from the letter from the former spouse's lawyer dated
January 21, 1994, in which he states that his client
[TRANSLATION] "intends to continue complying with the said
arbitration award voluntarily".
[31] In addition, the amounts paid
correspond to those provided for in the arbitration award.
[32] In Dlagacz v. M.N.R.,[7] the
taxpayer required to make alimony payments to his former spouse
under a divorce decree voluntarily paid amounts greater than
those provided for in the judgment. Judge Cardin concluded
at the time that the taxpayer could deduct from his income the
amounts of alimony paid up to the amount provided for in the
divorce decree. The additional amounts paid on a voluntary basis
were not deductible since there had been no written agreement to
that effect. Judge Cardin also held that there was no
evidence that the terms of the divorce decree had been
changed.
[33] In the instant case, an order was made
on the application for variation of corollary relief, under which
the former spouses agreed to settle their dispute before an
arbitrator and to comply with that arbitrator's decision. I
believe that this order affected the divorce judgment with
respect to corollary relief. The interim order was ancillary to
Judge Richard's order, which was to terminate when the
arbitration award was made.
[34] The two parties agreed in advance to be
bound by the arbitrator's final award. They subsequently
submitted to it and complied with its content, notwithstanding
the fact that it had not been homologated.
[35] In Dlagacz, supra, a
written agreement would have been acceptable to amend the divorce
decree for tax purposes without the need for a judgment to that
effect.
[36] In the instant appeal, I find that the
arbitration award had the effect of terminating
Judge Richard's interim order; it is entirely normal and
legitimate for parties bound by a support order to agree to amend
its content without failing to meet their obligations arising
therefrom.
[37] Since it was not homologated, the award
did not have the necessary characteristics to fall under the
provisions of the taxing statute; it moreover was not
binding.
[38] Undoubtedly an undeniable fact in the
context of a civil proceeding, the award in question did not meet
the requirements for constituting a reference in the application
of the provisions of the Act. Consequently, the amounts
paid and received were not subject to the statutory provisions
respecting inclusion and deduction.
[39] The appeal is therefore allowed.
Signed at Ottawa, Canada, this 17th day of January 2002.
J.T.C.C.
Translation certified true
on this 24th day of April 2003.
Sophie Debbané, Revisor
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