Docket: 2005-1810(IT)I
BETWEEN:
IAN DUSKES,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
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Appeal heard on common evidence with the appeal of
Shelly Cohen (2005-2229(IT)I)
on February 28, 2006 at Montréal, Québec
Before: The Honourable Justice G. Sheridan
Appearances:
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For the Appellant:
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The Appellant himself
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Counsel for the Respondent:
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Vlad Zolia
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JUDGMENT
The appeal from the reassessment made under the Income Tax Act for the 2003 taxation year is allowed and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that:
1. in respect of the appeal of Mr. Duskes, 2005-1810 (IT) I, of the $8,000 claimed in his 2003 income tax return, $4,000 was a "support amount" and is therefore deductible,
in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 24th day of March, 2006.
"G. Sheridan"
Citation: 2006TCC176
Date: 20060324
Docket: 2005-1810(IT)I
BETWEEN:
IAN DUSKES,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND BETWEEN:
2005-2229(IT)I
SHELLY COHEN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan, J.
[1] The appeals of Ian Duskes and Shelly Cohen were heard together on common evidence under the Informal Procedure. As such, these reasons have no precedential value and the result is specific to the particular facts of these appeals.
[2] The Minister of National Revenue reassessed the 2003 taxation years of both appellants, in Mr. Duskes' case, disallowing the deduction of $8,000 in spousal support[1] and in Ms. Cohen's case, including an equivalent amount in income for that year. On the recommendation of the department, each appealed from their reassessments. The issue is what amount, if any, was paid by Mr. Duskes and received by Ms. Cohen as spousal support. The relelvant portion of the definition of a "support amount" under subsection 56.1(4) of the Income Tax Act, reads:
...
"support amount" -- "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
...
[3] Following the breakdown of their marriage, Mr. Duskes moved to his sister's basement leaving Ms. Cohen and their children in the former family home pending its sale. There was not a lot of money to support one household, let alone two. Each retained counsel to settle such things as the division of property, child support and spousal support. A preliminary agreement, handwritten by Ms. Cohen's lawyer and as amended in writing by Mr. Duskes lawyer, was executed on March 17, 2003 and entitled "Interim Consent to Judgment"[2]. Paragraph 5 of this agreement states:
5. Defendant [Mr. Duskes] furthermore shall pay as spousal support the following amounts which shall be paid to the appropriate creditors directly:
a) $600.00 for the mortgage relating to the family residence; (per month)
b) $58.33 for electricity (per month)
c) $30.00 for Bell Canada (per month)
d) $65.00 for cable and Internet (per month)
e) $46.23 for the house insurance (per month)
f) $387.00 for Gaz Metropolitain present balance owing and Applicant shall pay further bills
g) $1,423.54 for the municipal and school taxes due for June 2003
h) $50.00 for Applicant's [Ms. Cohen's] additional expenses; (per month)
Just below this paragraph, counsel for Mr. Duskes added the words:
"... [T]he applicant shall provide Defendant with the bills referred to above and they shall be paid by Defendant on their due date."
[4] On June 4, 2003, a Judgment of Divorce[3] was issued by the Superior Court of Quebec (Family Division). The matter of spousal support was dealt with under paragraph 4:
...
4. SPOUSAL SUPPORT
4.1 THAT the parties agree that the FATHER shall pay the MOTHER a monthly spousal support payment in the amount of ONE THOUSAND DOLLARS ($1000.00) commencing on July 1st, 2003 and for a period of twenty-four (24) months, ending June 30th, 2005, whereof quit;
4.2 THAT the parties agree and the MOTHER confirms that the amount of spousal support being paid to her is in excess of the FATHER's capacity and this in an effort to assist her while she continues her full-time studies and the MOTHER hereby declares that at the latest on June 30th, 2005 she shall be financially autonomous and she hereby immediately renounces to request any further alimentary pension from the FATHER;
4.3 THAT the parties agree that for purposes of the spousal support received by the MOTHER, the parties agree that as of March 1st, 2003 to June 30, 2003, the MOTHER agrees that she confirms that she has received $2000.00 per month as spousal support;
[5] There is no dispute that Ms. Cohen received and paid tax on the $1,000 per month paid from July to December 2003 or that it was deducted from income by Mr. Duskes. The only period in dispute is March to June 2003, during which time, according to paragraph 4.3, Ms. Cohen confirmed the receipt of $2,000 per month for a total of $8,000. Ms. Cohen, however, says paragraph 4.3 does not reflect the reality of what transpired between March and June 2003. She testified that she agreed to these terms "under duress", as Mr. Duskes' counsel led her to believe if she did not sign, the proceeds from the sale of the family home would be withheld. She submits that, in fact, she received only $50 per month from Mr. Duskes in spousal support and that further, any additional amounts paid by Mr. Duskes (in her view, totalling something less than $2,000) were paid, not to her, but directly to her creditors. Since the money never passed through her hands, she can not be said to have had discretion as to its use as contemplated by subsection 56.1(4). Finally, Ms. Cohen says she was never made aware of the potential tax consequences of paragraph 4.3.
[6] Mr. Duskes takes the position that the parties, each represented by counsel, negotiated and agreed to the terms set out in paragraph 4.3. He admits that the amounts set out in paragraph 5 of the Interim Consent to Judgment total something less than the $2,000 in paragraph 4.3 but says that amount was agreed to in recognition of payments he had made prior to March 2003 or would likely be required to make from time to time in the future. It was also meant to take into account his having agreed to pay more than he could afford. Mr. Duskes says he had been advised that he would be able to deduct the $2,000; indeed, that was an incentive for agreeing to pay an amount beyond his means. According to paragraph 4.2 of the Judgment of Divorce, this excessive payment was to permit Ms. Cohen to complete her studies, thus accelerating their shared goal that she would be self-sufficient on or before June 2005.
Analysis
[7] Both Appellants struck me as bright, interesting and credible people. It is evident from their testimony, however, that there is a significant discrepancy between what each (now) says was agreed to in June 2003. This is perhaps inevitable given the strain caused by the marriage breakdown, the financial pressures they are both experiencing and their concern for their children. It is against this backdrop that I must determine the facts of this case and apply the law.
[8] The first issue is a question of fact: how much did Mr. Duskes actually pay? The wording of paragraph 4.3, confirms Ms. Cohen's receipt of $2,000 per month, a figure based on the amounts set out in paragraph 5 of the Interim Consent to Judgment and, according to Mr. Duskes, other amounts he paid. The evidence before me does not support the conclusion that Mr. Duskes paid $2,000. I am satisfied that, in fact, he paid approximately $1,000 per month from March to June 2003. There is insufficient evidence of any past or future payments that were "understood" to be included in the $2,000 figure. There is no dispute that in each of these four months Mr. Duskes paid directly to Ms. Cohen the amount of $50. As for the amounts listed in paragraph 5 of the Interim Consent to Judgment, I accept Ms. Cohen's evidence that municipal taxes of $1,453 were not paid by Mr. Duskes during this period but rather, were deducted from the sale proceeds of the family home on June 30, 2003. I also accept her evidence that she arranged with the bank to reduce the mortgage payment during this period from $600 to $450 per month. Finally, on the evidence of both Mr. Duskes and Ms. Cohen, the amount paid to Gaz Metropolitain ought to be reduced from $378 to $300 per month to reflect the onset of the warmer season.
[9] Having found that Mr. Duskes actually paid $1,000 per month from March to June 2003, the next question is whether that amount constitutes a "support amount". Mr. Duskes paid this amount directly to Ms. Cohen's creditors for the mortgage, insurance, taxes and utilities for the family home in which she and the children were living. Ms. Cohen now argues that if she had had the money in those months, she could have decided how to spend it. While this may be true, the fact remains that one way or another, these household bills had to be paid. Although Ms. Cohen says she agreed to have Mr. Duskes pay her creditors "under duress", she was represented by counsel. As evidenced by the various amendments and corrections, she and Mr. Duskes and their respective lawyers seem to have been actively involved in the drafting of the Interim Consent to Judgment and the Judgment of Divorce. While Ms. Cohen may feel she was poorly served by her counsel there is insufficient evidence before the Court for this allegation to be a factor in this appeal. Nor does her being unaware of the tax consequences of her agreement justify its being ignored.
[10] Having listened carefully to both Appellants, I am satisfied that in the thorny environment of their marriage breakdown and given the limited resources available, they quite reasonably (if not happily) agreed that rather than pay the agreed-upon spousal support directly to Ms. Cohen, Mr. Duskes would make the monthly payments on her behalf directly to the creditors. It must be borne in mind that the debts owed to these "creditors" were all in respect of the running and maintenance of the home in which Ms. Cohen and Mr. Duskes had a common interest: she and the children were living there pending its sale and distribution of the proceeds between the spouses. Ms. Cohen gave[4] the bills to Mr. Duskes who paid them "on line", marked them as paid and returned them to Ms. Cohen to confirm their payment. For these reasons, I am satisfied that the $4,000 actually paid by Mr. Duskes to Ms. Cohen's creditors was a support amount under subsection 56.1(4) of the Act.
[11] Accordingly, these appeals are allowed and referred back to the Minister for reconsideration and reassessment on the basis that:
1. in respect of the appeal of Mr. Duskes, 2005-1810 (IT) I, of the $8,000 claimed in his 2003 income tax return, $4,000 was a "support amount" and is therefore deductible; and
2. in respect of the appeal of Ms. Cohen, 2005-2229(IT)I, only $4,000 of the $8,000 included in her income by the Minister was received by Ms. Cohen as a "support amount".
Signed at Ottawa, Canada, this 24th day of March, 2006.
"G. Sheridan"
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