Citation: 2008TCC247
Date: 20080429
Docket: 2007-3993(IT)I
BETWEEN:
NORMAN J. WILSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AMENDED REASONS FOR JUDGMENT
These Amended Reasons for Judgment are issued in
Substitution for the Reasons for Judgment dated
April 25, 2008.
Webb J.
[1] The issue in this appeal is whether the Appellant is entitled to a
deduction in computing his income for 2003, 2004 and 2005 for the amounts paid
in those years to his former spouse as child support.
[2] The facts in this case are not in dispute. The Appellant, by an Order
issued by the Ontario Court (General Division) dated March 2, 1995 was ordered
to pay to his former spouse child support in the amount of $850 per month. The
applicable paragraph in this Order provided as follows
THIS COURT ORDERS that the Defendant [sic] to
pay to the Plaintiff, on account of interim-interim child support the sum of
$850 per month, commencing the 7th day of March, 1995, and payable thereafter
on the first of every month.
The Appellant’s former spouse was the Plaintiff and
the Appellant was the Defendant.
[3] While the Court Order provided a date for the commencement of the
monthly payments, it did not include an ending date for the payment of the
child‑support amounts. The child support was payable in relation to the
Appellant's daughter who was born in 1979. Therefore on her birthday in the
years under appeal, she would have been 24, 25 and 26. At that time, she was
either living on her own in Toronto or staying with the Appellant. The monthly payments
of the child support were garnished from the Appellant's wages and paid
directly to his former spouse. He did not take any action to terminate or vary
the Order issued by the Ontario Court (General Division) until after 2005.
[4] The Respondent has not disputed the fact that the
Appellant and his former spouse were living separate and apart or that the
amounts were paid by the Appellant. Since the Order was dated March 2, 1995
there is no “commencement day” as defined in subsection 56.1(4) of the Income
Tax Act (“Act”).
[5] The Respondent has denied the deduction claimed by the Appellant on the
basis that since the Appellant's daughter was not in his former spouse’s
custody in any of the years under appeal, the payments of $10,200 per year do
not qualify as support amounts. In support of the position of the Respondent,
counsel for the Respondent cited the case of Miguelez v. The Queen, [1999]
1 C.T.C. 2665. However, on closer examination of the facts in this case, the
position of the Respondent in the Miguelez case supports the Appellant's
position and not the position that the Respondent was taking in this case.
Justice Lamarre describes the facts in that case as follows:
1 The appellant is appealing under the informal procedure from
assessments made on February 27, 1997, by the Minister of National Revenue
("the Minister") for the 1993, 1994 and 1995 taxation years. In
computing his income for each of those years, the appellant deducted $18,424,
$14,400 and $4,800 respectively as alimony or maintenance. In making the assessments,
the Minister reduced the amount of alimony or maintenance for the 1993 taxation
year from $18,424 to $2,367, thus disallowing $16,057, and disallowed in full
the deductions for the 1994 and 1995 taxation years in full. In the Reply
to the Notice of Appeal, the respondent stated that she is now contesting only
the deduction of $6,457 in 1993, $4,800 in 1994 and $4,800 in 1995, amounts
that were paid directly to the appellant's child, Maia Miguelez. The
respondent argued that those amounts were not paid as alimony or maintenance
pursuant to subsections 56(12) and 60.1(1) and (2) and paragraphs 60(b) and (c)
of the Income Tax Act ("the Act").
2 The facts on which the Minister relied in making the assessments,
in so far as they relate to the amounts still in dispute, are as follows:
[TRANSLATION]
(a)
the appellant and Beatriz C. Miguelez ("the former
spouse") have lived separate and apart continuously since August 8, 1988;
(b)
the appellant and the former spouse entered into a separation agreement
("the separation agreement") on April 19, 1991;
(c)
the appellant and the former spouse have two children: Alain Miguelez,
an adult at the time of the separation, and Maia Miguelez ("the
child"), who was born on July 26, 1972;
(d)
in computing his income for the 1993, 1994 and 1995 taxation years, the
appellant deducted the amounts described below as alimony or maintenance:
|
|
Taxation
Year
|
|
Description
|
1993
|
1994
|
1995
|
|
1. Amounts paid directly to
the child
|
|
|
|
|
(a) support for the maintenance
of the child
|
$6,457
|
$4,800
|
$4,800
|
|
2. Amounts paid to the former
spouse
|
|
|
|
|
(a) as alimony to compensate for
the difference in value between the two properties transferred
|
$9,600
|
|
$9,600
|
|
(b) support for the maintenance
of the child
|
|
|
$2,467
|
|
|
|
|
|
|
TOTAL:
|
$18,424
|
$14,400
|
$4,800
|
(emphasis added)
[6] Although the
amounts as set out in the table in the reported English decision are as above,
the amounts in the columns do not add up to the amounts shown as the totals and
are not consistent with the facts as described in paragraph 1. In the French
version of this case the amounts are in the columns as set out below:
|
|
Taxation
Year
|
|
Description
|
1993
|
1994
|
1995
|
|
1. Amounts paid directly to
the child
|
|
|
|
|
(a) support for the maintenance
of the child
|
$6,457
|
$4,800
|
$4,800
|
|
2. Amounts paid to the former
spouse
|
|
|
|
|
(a) as alimony to compensate for
the difference in value between the two properties transferred
|
$9,600
|
$9,600
|
|
|
(b) support for the maintenance
of the child
|
$2,467
|
|
|
|
|
|
|
|
|
TOTAL:
|
$18,424
|
$14,400
|
$4,800
|
[7] This is consistent with the facts as described in paragraph 1 except
that the total of the amounts for 1993 add to $18,524 (which is $100 more than
the amount as stated in the table and in paragraph 1 of the facts).
[8] In any event, it is clear that the only amounts in dispute in that case
were the amounts that were paid directly to the child, not the amount paid to
the former spouse as support for the child. The child in that case was 21 on
July 26, 1993. The Respondent in that case agreed that the amounts that were
paid to the former spouse in support of the child, even though the child was no
longer a minor, were deductible in that case. This would have been the amount
of $2,467 paid to the spouse in 1993 as support for the maintenance of the
child.
[9] In Demey v. The Queen, [2000] 2 C.T.C. 2026 , Justice Lamarre
held that payments made to a former spouse as support for children who had
attained the age of majority were deductible by the payer. The distinction was
made between the amounts paid directly to the former spouse and payments made
directly to the children.
[10] Paragraph 60(b) of the Act provides as follows:
60. 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] As a result of the provisions of subsection 60.1(4) of the Act,
the definitions in subsection 56.1(4) of the Act apply in section 60.
"Support amount" is defined in subsection 56.1(4) of the Act
as follows:
“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 legal 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] There is no requirement in paragraph 60(b) of the Act or in the
definition of “support amount” that the receiving party have custody of the
child. The concept of custody is found in subsection 60.1(1) of the Act,
which is the subsection that is dealt with in the cases that deal with payments
made directly to adult children, such as Miguelez, supra and The
Queen v. Curzi, [1994] F.C.J. No. 154; [1994] 2 C.T.C. 220. This subsection
provides as follows:
60.1 (1) For the purposes of paragraph 60(b) and subsection 118(5), where
an order or agreement, or any variation thereof, provides for the payment of an
amount by a taxpayer to a person or for the benefit of the person, children in
the person's custody or both the person and those children, the amount or any
part thereof
(a) when payable, is deemed to be payable to and receivable by that
person; and
(b) when paid, is deemed to have been paid to and received by that
person.
[13] In Curzi, supra, Justice Noël described the interaction of
paragraph 60(b) of the Act and subsection 60.1(1) of the Act as
follows:
6 Section 60(b) permits the deduction of
amounts paid to a former spouse for the benefit of the children of the
marriage. Under subsection 60.1(1), an amount paid not to the former spouse but
for the benefit of a child in that person's custody is nonetheless deemed to
have been paid to the spouse, so that it may still be deducted under section 60(b).
The question raised by this case is therefore whether, in the circumstances,
Stéphane was still in his mother's custody at the time he received the amounts
in question.
[14] Subsection 60.1(1) of the Act is not relevant in this case
because the payments were made directly to the Appellant’s former spouse.
Therefore the issue of custody is not relevant as this requirement is in
subsection 60.1(1) of the Act but not in paragraph 60(b) of the Act nor
is it in the definition of support amount.
[15] Counsel for the Respondent also referred to section 31 of the Family
Law Act of Ontario which provides that:
31. (1) Every parent has an obligation
to provide support for his or her unmarried child who is a minor or is enrolled
in a full time program of education, to the extent that the parent is capable
of doing so. R.S.O. 1990, c. F.3, s. 31 (1); 1997, c. 20,
s. 2.
(2) The
obligation under subsection (1) does not extend to a child who is sixteen years
of age or older and has withdrawn from parental control. R.S.O. 1990,
c. F.3, s. 31 (2).
[16] While this may mean that the Appellant in this case could have taken
some action to have the support Order for his daughter varied or terminated,
until such action was taken there was an Order of the Ontario Court that
stipulated that such amounts were to be paid monthly. Justice McIntyre of the
Supreme Court of Canada in R. v. Wilson, [1983] 2 S.C.R. 594; 4 D.L.R.
(4th) 577 made the following comments with respect to the validity
of Court Orders:
The cases cited above and the authorities referred to therein confirm the
well-established and fundamentally important rule, relied on in the case at bar
in the Manitoba Court of Appeal, that an order of a Court which has not been
set aside or varied on appeal may not be collaterally attacked and must receive
full effect according to its terms.
[17] The Order issued by the Ontario Court must receive full effect
according to its terms. No action was taken to vary or terminate this Order
prior to 2006. While there is a process that could have been undertaken to vary
or terminate the support Order no such action was taken. As a result, the
payments made by the Appellant to his former spouse were made under the Court Order
which was still effective.
[18] Clearly the recipient had discretion with respect to the use of the
amount as the Order simply provided that the Appellant was to pay the amount to
his former spouse and the amount was garnished from his pay. The definition of “support
amount” only requires that the amount be payable on a periodic basis for the
maintenance of the children, it does not provide that the recipient must
actually use the amount so received to pay for the maintenance of the children.
Since it is also a requirement of the definition of “support amount” that the
recipient must have discretion as to the use of the amount, the recipient is
able to spend the amount as he or she sees fit. To find that the Appellant’s
former spouse would have been required to spend the amount so received on the
maintenance of his daughter in order for the amount so paid to be a support
amount would be inconsistent with the requirement of the definition of “support
amount” that the recipient have discretion as to the use of the amount and
would require a tracing of the funds that is not contemplated by the definition
of support amount.
[19] Since there is no requirement in paragraph 60(b) of the Act or
in the definition of “support amount” that the child be in the custody of the
recipient of the money and since the other requirements of the definition of
paragraph 60(b) of the Act and the definition of “support amount” were
met, the amounts paid by the Appellant in 2003, 2004 and 2005 to his former
spouse under the Order of the Ontario Court (which were garnished from his pay)
were support amounts.
[20] The appeal is allowed and the matter is referred back to the Minister
of National Revenue for reconsideration and reassessment on the basis that the
Appellant is entitled to deduct:
(a)
the amount of $10,200 as a
support amount in computing his income for 2003;
(b)
the amount of $10,200 as a
support amount in computing his income for 2004; and
(c)
the amount of $10,200 as a
support amount in computing his income for 2005.
Signed at Halifax,
Nova Scotia, this 29th day of April 2008.
“Wyman W. Webb”
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