Citation: 2009TCC283
Date: 20090611
Docket: 2008-2525(IT)I
BETWEEN:
CHERYL LABORET,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan, J.
[1] The Appellant, Cheryl Laboret, is appealing the
reassessment of her 2004 and 2005 taxation years. In each of those years, the Minister
of National Revenue included, as spousal support under paragraph 56(1)(b)
of the Income Tax Act, payments of $32,400 made to the Appellant by her
former spouse (the “Former Spouse”).
[2] The only
issue in dispute is whether each payment of $32,400 was a “support amount”
under paragraph 56.1(4)(a), the relevant portions of which are as
follows:
“support
amount” means an amount payable or receivable as an allowance on a periodic
basis for the maintenance of the recipient … , if the recipient has discretion
as to the use of the amount, and
(a) the
recipient is the … former spouse … of the payor, the recipient and the 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
…
[3] The Appellant’s
position is that the $32,400 amounts were lump sum payments and as such, are
not caught by the definition of “support amount”. She argued as well that she
had not understood or agreed that the amounts she received in those years would
be taxable.
[4] The
Respondent’s position is that the $32,400 payments were received by the
Appellant pursuant to a series of orders of the Court of Queen’s Bench of
Alberta as an allowance payable on a periodic basis and accordingly, each is a “support
amount” as contemplated by the legislation and must be included in the
Appellant’s income for 2004 and 2005. For the reasons set out below, I am
persuaded that the Respondent’s argument is the correct one.
[5] The Appellant
represented herself at the hearing and was the only witness to testify. It was
clear from her evidence that she and the Former Spouse did not have an amicable
parting of the ways and that the past few years have been difficult ones for her.
While I am sympathetic to the situation in which she has found herself, I must
nonetheless decide these appeals in accordance with the evidence presented, the
applicable legislative provisions and the case law.
[6] In January
1999, Justice Fraser of the Court of Queen's Bench of Alberta
presided over divorce proceedings commenced by the Appellant and an action for
the distribution of matrimonial property brought by the Former Spouse.
[7] In respect of
the divorce proceeding, Fraser, J. issued the “Amended Divorce Judgment and
Corollary Relief Order” (the “Fraser Support Order”) under which the Former
Spouse was ordered to pay child support of $500 per month to the Appellant for
their son. He was also ordered to pay spousal support of $2,400 per month from
April 1999 to June 2001, with the issue of whether any spousal support should
be paid after June 1, 2001 to be determined at the continuation of the trial
upon the request of either party.
[8] As for the
matrimonial property distribution, the Court ordered (the “Matrimonial Property
Order”) that a new home purchased by the Former Spouse after
their separation (the “New House”) was to vest solely in him. The former
matrimonial home (the “Lake Mead House”) was to vest in the Appellant. The
Appellant was to pay an equalization payment to her Former Spouse of $40,411.97
on February 1, 1999 with interest until paid in full, such amount to be secured
by a lien against the Lake Mead House in favour of the Former Spouse.
[9] As it turned
out, the Fraser, J.’s orders were more honoured in the breach than the
observance. The Former Spouse made not one of the monthly payments due in the
period April 1999 to June 2001 which totalled $64,800 comprised of $2,400 per
month for the 27-month period April 1, 1999 to June 1, 2001. Rather than paying
child support of $500 per month to the Appellant as directed under the Fraser
Support Order, he unilaterally elected to apply the child support amounts to the
mortgage on the Lake Mead House (notwithstanding that under the Matrimonial
Property Order he no longer had an interest in it and the payments were to be
the sole responsibility of the Appellant), paying the mortgage amount directly
to the bank and depositing any remaining balance in the Appellant’s account. The
Appellant did not transfer title to the Lake Mead House from their joint names
to her name only; nor, apparently, did the Former Spouse register a charge
against the Lake Mead House to secure the equalization payment which remained
outstanding. At some point and for reasons not known to the Court, the
Appellant registered a certificate of Lis Pendens against the
Former Spouse’s New Home. Neither party had requested a continuation of the
trial for a ruling on whether further spousal support should be paid.
[10] In May 2002, there
was an exchange of correspondence[4]
between the Appellant’s lawyer and the Former Spouse regarding a request for his
updated financial information but, ultimately, nothing came of it. The Former
Spouse remained in default under the Fraser Support Order.
[11] In December
2004, discussions somehow recommenced between the Appellant and the Former
Spouse through their respective counsel. In a letter dated December 6, 2004,
counsel for the Appellant wrote the following to the Former Spouse’s lawyer,
with a copy to her:
…
Pursuant to the above, and our conversation of December 6, 2004 this
confirms that the within matter has been adjourned to December 8, 2004. As I
indicated to you my client will accept a “wash” of the monies owed to either
party. You indicated your client would accept this. I will prepare the Consent
Order and the Withdrawal of Lis Pendens and the Transfer of Land transferring
the property from Joint names to my client’s name alone. You can prepare the acknowledgment
you wish my client to sign with regards to receiving the monies with the
understanding that once the monies are here we will execute an acknowledgment
of receiving the monies and send you the cheque back with my client’s signature
endorsed on the back so that your client can cash the cheque.
[12] By letter
of the same date, counsel for the Former Spouse replied as follows:
…
RE: Laboret
v. Hennings
Enclosed is
Dr. Hennings’s cheque in the amount of $32,400.00 representing spousal support
paid for taxation year 2004. The spousal support is paid pursuant to the order
of Justice Fraser and consent order executed as between us through counsel.
This amount if [emphasis added] fully taxable in your hands for the
purposes of income tax and tax deductable [sic] in my hands for the
purposes of income tax during taxation year 2004.
Please
acknowledge receipt of this cheque and acceptance of these conditions by
endorsing your acknowledgement and agreement on the return copy of this letter
and endorsement of the cheque.
Yours truly,
BLAINE G.
SCHUMACHER
BGS/mgo cc:
Murray Hennings
Acknowledged
and Agreed
[Signature of] Cheryl Ann Laboret
Date
December 6, 2004
[13] The Appellant
admitted that she had signed the two letters and endorsed the enclosed cheques,
as requested, which were then returned to the Former Spouse. Included in the
bundle of documents in Exhibit A-4 is a photocopy of the cheques from the
Former Spouse made payable to the Appellant and duly endorsed by her. She
insisted, however, that it had not been her understanding that the amounts
agreed to would be taxable.
[14] On December
8, 2004, Justice Hillier granted the Appellant’s application, upon consent of counsel
for the Former Spouse, and issued the following order (the “Hillier Consent
Order”):
…
IT IS HEREBY
ORDERED AS FOLLOWS:
1. THAT the Respondent MURRAY NORMAN HENNINGS shall pay
spousal support to the Petitioner in the amount of $64,800.00 as follows:
a) $32,400 shall be paid in the month of December 2004, on or
before December 15, 2004.
b) $32,400 shall be paid in the month of January 2005.
Which amount
shall be taxable in the hands of the Petitioner and tax deductible in the hands
of the Respondent.
2. THAT the equalization payment owed by the Petitioner CHERYL
ANN LABORET to the Respondent MURRAY NORMAN HENNINGS shall be paid as follows:
a) $32,400
in the month of December 2004.
b) $32,400
in the month of January 2005.
In full and
final satisfaction of the Respondent’s equalization claim.
3. THAT the Respondent shall sign a Transfer of Land on or
before December 15, 2004 transferring the property municipally described as 220
Lake Mead Crescent S.E., Calgary, Alberta, transferring the property from
joint names to the name of CHERYL ANN LABORET. The Petitioner shall be
responsible for all outstanding liabilities regarding 220 Lake Mead Crescent
S.E., Calgary, Alberta including but not limited to mortgage payments, taxes,
insurance, utilities, etc.
4. THAT the Respondent shall have no further interest in the
property municipally described as 220 Lake Mead Crescent S.E., Calgary, Alberta.
5. THAT the Petitioner, CHERYL ANN LABORET shall withdraw her
Certificate of Lis Pendens from the property municipally described as 144 Lake Bonavista
Drive S.E., Calgary, Alberta. The Respondent shall be responsible for all
outstanding liabilities regarding 144 Lake Bonavista Drive S.E., Calgary, Alberta,
including but not limited to mortgage payments, taxes, insurance, utilities,
etc.
6. THAT the Petitioner shall have no further interest in the
property municipally described as 144 Lake Bonavista Drive S.E., Calgary, Alberta.
7. THAT the within Order shall be filed notwithstanding
counsel for the Respondent’s signature is by way of facsimile.
…
[15] The Former
Spouse claimed a deduction for spousal support in 2004 and 2005[9].
[16] The
Appellant, however, did not include these amounts in her income for these
taxation years. In November 2005, the Minister reassessed her 2004 taxation
year to include the $32,400 in her income. She objected and by Notice of
Reassessment dated May 23, 2006, the Minister reversed his decision and deleted
that amount from her income.
[17] By that time,
she had filed her income tax return for 2005 and it was assessed, as filed, on June
1, 2006.
[18] On October 3,
2007, the Former Spouse made an application to the Court of Queen’s Bench of Alberta for an
order to amend the spousal support provisions of the Hillier Consent Order. The
following order was issued by Justice Kenny (the “Kenny Amending Order”):
IT IS HEREBY
ORDERED AS FOLLOWS:
1. The first paragraph of the Order of Justice Hillier of
Wednesday 8 December 2004, shall be deleted in its entirety and replaced with
the following:
“That arrears
of spousal support payable on a periodic basis for the maintenance of the
Petitioner Cheryl Ann Laboret, in the amount of $2,400.00 per month, commencing
1 April 1999, and continuing for the next 27 months up to 1 January 2001, are now due and owing,
and shall be paid as follows:
i)
$32,400.00 shall be paid in the month of December 2004 on or before 15
December 2004; and
(ii) $32,400.00 shall be paid in the month of January 2005.
Both these amounts, representing monthly spousal support
payments payable on a periodic basis pursuant to the Income Tax Act for
the Maintenance of the Petitioner, Cheryl Ann Laboret, owing but so far unpaid,
shall be tax deductible by the payor spouse, Murray Norman Hennings, and shall
be taxable in the hands of the recipient spouse, Cheryl Ann Laboret.
2. Paragraphs 2, 3, 4, 5, 6, and 7, of the subject Order of
Justice Hillier shall remain in full force and effect.
3. The amounts owing under this Order shall be paid to the
Director of Maintenance Enforcement (“MEP”) at 7th floor North,
10365 97 Street, Edmonton, Alberta T5J 3W7, (telephone (780) 422-5555),
(website www.albertamep.gov.ab.ca)
and shall be enforced by MEP upon the creditor, recipient of support or debtor
(payor of the support) registering with MEP. Such enforcement shall continue
until the party who registered gives MEP a notice in writing withdrawing the
registration pursuant to Section 9 of the Maintenance Enforcement Act.
…
[19] On December
17, 2007 the Minister again reassessed the Appellant’s 2004 and 2005 taxation
years to include the $32,400 payments in her income for each of those years.
The Appellant objected, the Minister confirmed and the upshot is the matter at
bar.
Analysis
[20] The Appellant
submitted that notwithstanding her signature indicating her agreement to the
terms upon which the Former Spouse was to pay the $64,800 and her endorsement
of the cheques received from him, she had never agreed to pay tax nor had she understood
that tax would be payable on that amount. In support of her contention, she
pointed to the use of the word “if” in the December 2004 and January 2005
letters in the sentence commencing “This amount if fully taxable in your
hands for the purposes of income tax … ”[12] [italics added]. The Appellant explained that she had
made the same argument, without success, to oppose the amendment of the Hillier
Consent Order. She expressed bewilderment as to how the Kenny Amending Order
could simply rewrite the spousal support portion of the Hillier Consent Order.
[21] First of all, I have
no difficulty accepting the Appellant’s evidence that in December 2004, she was
at the end of her emotional and financial tether and relied on her lawyer “to
do the right thing”. However, that does not alter the fact of her agreement to
the terms set out in the letters between her counsel and that of the Former
Spouse. As for the Kenny Amending Order, I have no jurisdiction to review its
correctness but for the reasons set out below, it is not inconsistent with the
terms of the Fraser Support Order, the agreement reached between the parties or
even, the Appellant’s own testimony.
[22] The documents in Exhibit A-4 reveal the intention of the Appellant and the Former Spouse to
complete the steps still outstanding under the Matrimonial Property Order and
the Fraser Support Order, including the payment of spousal support in arrears
of $64,800. Indeed, it was the Appellant’s counsel who sought the Hillier
Consent Order; who invited counsel for the Former Spouse to prepare the
“acknowledgment and agreement” letters following their discussions of December
6, 2004; and who drafted the terms of the consent order ultimately presented to
Hillier, J.[13]. In his letters of response, counsel for the Former
Spouse refers specifically to spousal support of two payments of $32,400 “paid
pursuant to the order of Justice Fraser”. Although no express reference is made
to the Fraser Support Order in the Hillier Consent Order, the spousal support amount
of $64,800 corresponds directly to the payments of $2,400 per month for the
period April 1, 1999 to June 1, 2001 ordered by Fraser, J. In my
view, even if the amendments effected by the Kenny Amending Order were
disregarded, the result would be the same. Finally, the Appellant’s testimony
regarding the Former Spouse’s shamefully recalcitrant behaviour in respect of
his obligation to pay spousal support convinces me that but for the court
orders, he would never have paid her a penny. Thus, when he finally did pay the
amounts owing, he did so “under an order of a competent tribunal” (as the Act
now reads) rather than “by reason of a legal obligation imposed or undertaken”, the test established by the Supreme Court of Canada in
Minister of National Revenue v. J. J. Armstrong to distinguish between a periodic payment and a lump sum amount. It is
clear from in the orders, the agreement and the course of conduct of the
Appellant and the Former Spouse that the $32,400 payments made in 2004 and 2005
pertained to the Former Spouse’s pre-existing obligation to pay spousal support totalling $64,800 for the period April 1, 1999
to June 1, 2001.
[23] Although much
of the Appellant’s argument revolved around her not having “agreed” to the
$64,800 being taxable, it is not because of her agreement (or even, their
description as “taxable” in the court orders) that they must be included in the
Appellant’s income: that determination depends on whether the circumstances of
their payment fall within the governing provisions of the Act.
[24] For these
reasons, I am persuaded by the Respondent’s submission that the two payments of
$32,400 were properly included in the Appellant’s income. In so concluding, I do not condone for one moment the Former Spouse’s
failure to pay the spousal support when due. That factor, however, is not determinative
of whether the Appellant was required to include the amount of $32,400 in her income
for each of the 2004 and 2005 taxation years; in The Queen v. Sills[17], the Federal Court of Appeal held that “… [s]o long
as the agreement provides that the monies are payable on a periodic basis, the
requirement of the subsection is met. The payments do not change in character
merely because they are not made on time.”[18] Accordingly, the appeals must be dismissed.
Signed at Ottawa, Canada, this 11th day of June, 2009.
“G. A. Sheridan”
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