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Citation: 2008TCC226
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Date: 20080424
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Docket: 2007-2654(IT)I
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BETWEEN:
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NEVILLE GALE,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent,
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and
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Docket: 2007-2779(IT)I
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BETWEEN:
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VICTORIA (WEBER) DEVEAU,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Little J.
A. The Facts
[1] The
parties agreed that due to the similar facts involved, the appeals should be
heard together on common evidence.
[2] The
Appellant, Neville Gale (hereinafter “Gale”), had a long-term common‑law
relationship with the Appellant, Victoria (Weber) Deveau (hereinafter “Weber”).
[3] Two
children were born:
- Daughter born March 29, 1985
- Daughter born December 30, 1986.
[4] Gale
and Weber discontinued their common-law relationship in July 1993.
[5] Pursuant
to a Court Order dated May 16, 1996, Justice Whalen of the Ontario Court
(General Division) ordered that Gale pay Weber child support of $400.00 per month
per child commencing May 1, 1996.
[6] Pursuant
to a Court Order dated March 27, 1997 Justice Caputo of the Ontario Court
(General Division) ordered as follows:
7. THIS COURT ORDERS that
paragraph 7 of the existing Order of Justice W.L. Whalen shall be varied to
read as follows:
7. THIS COURT ORDERS that
the Appellant Neville Gale shall pay child support in the amount of $200 per
month per child commencing May 1, 1997.
(Note: The ORDER issued by the
Court on March 27, 1997 refers to the effective date in type as May 1, 1996.
However, the evidence before the Tax Court indicated that the Order of
Justice Caputo was apparently altered by an official of the Ontario Court
(General Division) and the effective date was shown in hand writing as May 1,
1997. It was suggested by the Appellants in the Tax Court that the different
date shown on the Order was a “typo”. Gale and Weber both agree that the
effective date of the Order of Justice Caputo was May 1, 1997).
[7] When
the Appellant Gale filed his income tax return for the 2004 taxation year he
claimed that he had paid Weber child support payments in the amount of $6,977.
[8] When
the Appellant Weber filed her income tax return for the 2004 taxation
year, she did not report any of the child support payments that Gale had made.
[9] By
Notice of Reassessment dated October 30, 2006 the Minister of National Revenue
(the “Minister”) reassessed the Appellant Gale and disallowed the child support
payments that the Appellant Gale had claimed for the 2004 taxation year.
[10] By Notice of Reassessment dated March 16, 2006 the Minister reassessed
the Appellant Weber for the 2004 taxation year to include the child support payments
in the amount of $6,977.00 in the income of the Appellant Weber.
B. Tax Issue For the Appellant Gale
[11] Is the Appellant Gale allowed to deduct child support payments of
$6,977.00 in determining his income for the 2004 taxation year?
C. Tax Issue for the Appellant
Weber
[12] Is the Appellant Weber required to include the
amount of $6,977.00 of child support payments in determining her income for the
2004 taxation year?
D. Child Support Payments
[13] 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 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.
[14] “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;
[15] Under the former rules in the Act
(pre-May 1997) a spouse making child support payments for the support of
children could deduct those payments and the recipient was required 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.
[16] 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.
[17] The legislation dealing with child support payments
made under Court Orders or agreements made after May 1, 1997 is referred to as
the new regime. The legislation dealing with child support payments made
under Court Orders or agreements before May 1, 1997 is referred to as the old
regime.
[18] In considering the questions before the Court I
have referred to a number of Court decisions dealing with the amended
legislation. I refer in particular to the decision of Madame Justice Sharlow in
Holbrook v. Canada, [2007]
F.C.A. 145.
[19] In Holbrook the facts were that the
Appellant and her husband separated after 20 years of marriage. By virtue of an
Interim Order made in 1994 the husband was required to pay the Appellant child
support in the amount of $1,000.00 per month.
[20] On April 28, 1998 the Appellant and her husband
entered into a separation agreement which required the husband to pay the Appellant
child support payments in the amount of $1,000.00 per month with the first
payment to be made on May 1, 1998.
[21] On May 28, 1999 the Appellant and her husband
obtained a divorce judgment which required the husband to pay the Appellant
child support of $1,000.00 per month with the first payment to be made on May
1, 1998.
[22] When the Appellant filed her income tax return
she did not report any of the child support payments in her income.
[23] The Minister reassessed the Appellant to include
the child support payments in her income.
[24] The Appellant appealed to the Tax Court of
Canada and her appeal was dismissed.
[25] The Appellant appealed to the Federal Court of
Appeal and her appeal was allowed.
[26] Madam Justice Sharlow of the Federal Court of
Appeal allowed the appeal. Sharlow, J. said that the commencement day contained
in the separation agreement was April 28, 1998 and therefore all child support
payments payable on or after May 1, 1998 were subject to the new regime
and were not taxable to the Appellant.
[27] In reaching her conclusion, Madam Justice
Sharlow said at paragraphs [7], [8] and [9]:
[7] Child support
amounts are subject to the new regime only if they are payable under an agreement
or order with a commencement day of May 1, 1997 or later. The commencement day
of an agreement or order made after April 1997 is determined by paragraph (a)
of the definition of “commencement day”. Paragraph (a) says that the
commencement day of an agreement or order made after April 1997 is the day it
is made. It follows that a child support amount payable under an agreement or
order made after April 1997 is subject to the new regime.
[8] Generally, a
child support amount payable under an agreement or order made before May 1997
is subject to the old regime. However, there are four exceptions to that
general rule. The four exceptions operate by attributing a post-April 1997
commencement day to a pre-May 1997 agreement or order.
1) The first
exception applies if the parties to an agreement or order file a joint election
specifying a post-April 1997 commencement day for a pre-May 1997 agreement or
order (subparagraph (b)(i) of the definition of “commencement
day”). Because of this provision, it is always open to parties to agree to be
subject to the new regime.
2) The second
exception applies if a pre-May 1997 agreement or order is varied after April
1997 to change the child support amounts payable. In that case, the
commencement day of the pre-May 1997 agreement as varied is the day on which
the first varied amount is payable (subparagraph (b)(ii) of the
definition of “commencement day”).
3) The third
exception applies if there is a pre-May 1997 agreement or order under which
child support amounts are payable, and another agreement or order is made after
April 1997, the effect of which is to change the total child support amounts
payable (subparagraph (b)(iii) of the definition of “commencement day”).
This provision may cover a number of different situations. Generally, it is
intended to ensure that where there is an increase in the total child support
amounts payable, the new regime cannot be avoided by having the original amount
governed by pre-May 1997 agreement or order and the increase governed by a
post-April 1997 agreement or order.
4) The fourth
exception applies if a pre-May 1997 agreement or order (or a variation of a
pre-May 1997 agreement or order), specifies a particular day after April 1997
as the commencement day of the agreement or order (subparagraph (b)(iv)
of the definition of “commencement day”). In that case, the commencement day is
the specified day. Whether that condition is met in a particular case turns on
the interpretation of the agreement or order, which may in certain cases
require consideration of extraneous evidence. This condition may be met by any
variation of an old agreement or order, whether or not there is a change to
total child support amounts payable, as long as a commencement day is specified
in the agreement or order in which the variation is made.
[9] The four
exceptions in paragraph (b) do not expressly deal with the situation
where there is a pre-May 1997 agreement or order and a post-April 1997
agreement or order, both requiring the payment of the same amount of child support,
where the later agreement or order does not expressly stipulate a commencement
day and the parties do not make a joint election. In that situation, the later
agreement or order may be construed as merely recognizing the continuation of
the obligation set out in the earlier agreement or order, in which case the
child support amounts would be payable under the earlier agreement or order and
the old regime would apply even after the later agreement or order is made
because the later agreement or order would not be relevant. Alternatively, the
later agreement or order may be construed as terminating the child support
obligation in the previous agreement or order, and replacing it with a new
child support obligation, in which case the child support amounts paid after
the later agreement or order is made would be payable under that later
agreement or order, which would have a post-April 1997 commencement day
pursuant to paragraph (a) of the definition of “commencement day”.
Therefore, the new regime would apply after the later agreement or order is
made. …
[28] In my opinion Justice Sharlow’s reasoning in Holbrook
would apply in this situation.
[29] 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 Order of Justice Caputo reduced the
child support payments to be made by the Appellant Gale from $400.00 per month
per child to $200.00 per month per child commencing on May 1, 1997.
[30] I have concluded that the Appellant Gale comes
within the new regime in section 56.1 of the Act. He is therefore not
allowed to deduct the child support payments that he made in computing his
income for the 2004 taxation year.
[31] The appeal filed by the Appellant Gale is
dismissed without costs.
[32] I have also concluded that the Appellant Weber
is impacted by the new legislation since the Court Order of Justice Whalen was
varied by the Court Order of Justice Caputo. The commencement day of the Caputo
Order is May 1, 1997. It therefore follows that the Appellant Weber comes
within the new regime and she is not required to include the child support
payments in her income.
[33] The appeal filed by the Appellant Weber is
allowed without costs.
[34] Before concluding my comments I wish to state that the Appellant Gale
is to be commended for continuing to assist his daughters financially in spite
of the fact that he stated in Court that he has lost all contact with his
daughters.
Signed at Vancouver,
British Columbia, this 24th day of April 2008.
Little
J.
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