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Citation: 2004TCC672
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Date:20041025
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Docket: 2004-238(IT)I
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BETWEEN:
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ARTHUR P. (PAT) WERBY,
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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
Sheridan, J.
[1] The Appellant, Arthur Werby, is
appealing the reassessment made by the Minister of National
Revenue for income tax for the 2001 taxation year. There are two
separate issues in this appeal:
(1) whether amounts paid by
Mr. Werby for the support of his daughter in the 2001
taxation year are deductible;
(2) whether the withdrawal by his
spouse of funds from their spousal RRSP account in the 2001
taxation year required Mr. Werby to include as income an
amount equal to his contributions to that account.
I. Deductibility of Child
Support
[2] In 1996, Mr. Werby and his former
spouse executed a written Separation Agreement pursuant to which
he was required to pay $200.00 per week for the maintenance of
his daughter Adrienne. In 2001, Adrienne was 22 years old and
living with her mother, though during the academic term she was
in university residence. During that year, as in all years prior
to 2001, Mr. Werby paid child support to Adrienne's mother in
accordance with his obligations under the Separation Agreement.
To succeed in this appeal, Mr. Werby has the onus of proving that
the $10,400.00 paid in 2001 was a "support amount" as
defined by paragraph 56.1(4)(a) of the Income Tax
Act[1].
The Minister's position is that because Clause 3.1(c)[2] of the 1996 Separation
Agreement provided for its termination upon Adrienne's
reaching the age of 21, the payments made by Mr. Werby in
2001 (when his daughter was 22 years old) were not made
"under a written agreement". From this it follows that
they were not "support amounts" within the meaning of
paragraph 56.1(4)(a) and are, therefore, not
deductible.
[3] Mr. Werby represented himself and
was the only witness called at the hearing. He gave his evidence
in a clear and straight-forward manner and I found him a very
credible witness. His position is that Clause 3.1(c) must be
interpreted in light of the other provisions[3] in the Separation Agreement
which link Mr. Werby's obligation to pay support for
Adrienne to her attendance at a post-secondary education. He
stated that he and his former spouse had spent a "stressful
and confusing" 2½ years negotiating what became the
1996 Separation Agreement. Adrienne was in high school at that
time. Notwithstanding their other differences, her parents had in
common their desire to ensure Adrienne's access to
post-secondary education. It was for this reason, he said,
that the Separation Agreement contained numerous clauses
regarding financial support for her education. In view of this,
it was nonsensical, in Mr. Werby's view, to conclude that his
former spouse would have intentionally agreed to a clause which
released Mr. Werby from further payments at a time when, in all
likelihood, his daughter would have been only half way through
her studies. That he considered himself to be obligated to pay as
long as she was in school is shown by his having paid all amounts
due under the Separation Agreement, even after Adrienne's
21st birthday. Likewise, his former spouse continued
to claim these amounts as income; Mr. Werby, to deduct them
as provided for in the Separation Agreement[4].
[4] Counsel for the Respondent argued
that notwithstanding all of the above, the language of Clause
3.1(c) released Mr. Werby from any further financial obligations
upon his daughter becoming 21 years of age. In my view, however,
this clause must be read in a context that is consistent with the
other terms of the Separation Agreement that are clearly geared
to providing financial support for Adrienne's post-secondary
education. The conduct of both Mr. Werby and his former spouse[5] is entirely
consistent with this interpretation. I agree with
Mr. Werby's contention that it simply does not make
sense for parents as concerned as they were with ensuring their
daughter had the means to complete her education, to have
intended to include a terminating clause so obviously at odds
with this objective. The Court ought not to interpret agreements
in a manner that produces a result completely inconsistent with
the intentions and actions of the parties to the agreement. Nor
is the Canadian taxpayer prejudiced by this interpretation as the
amounts deducted from Mr. Werby's income were included as
income by his former spouse. For all of these reasons, I find
that the support paid by Mr. Werby to his former spouse was paid
pursuant to a written agreement within the meaning of the
Income Tax Act. The appeal is allowed, without costs, and
referred back to the Minister for reconsideration and
reassessment on the basis that the support payments of $10,400.00
are deductible.
II. RRSP Issue
[5] At the hearing, counsel for the
Respondent conceded that the amount in issue ought to be
$5,500.00 rather than $6,250.00, the amount for which Mr. Werby
was originally assessed. Briefly stated, the facts are these: a
spousal RRSP account had been established in which Julie Oliviera
(at the time, his common-law partner, now Mr. Werby's spouse)
was named as the annuitant and Mr. Werby, as the contributor. In
1999, Mr. Werby contributed $5,500.00 to the RRSP account; in
2001, Ms. Oliviera withdrew $6,250.00 from the RRSP account.
Pursuant to subsections 146(8) and 146(8.3) of the Income Tax
Act, an amount equal to Mr. Werby's contribution
(not his spouse's withdrawal) must be included in his income.
The appeal of this matter is allowed, without costs, and referred
back to the Minister for reconsideration and reassessment on the
basis that the amount of $5,500.00 ought to be included as income
for the 2001 taxation year.
Appendix I
...
3. CHILD
SUPPORT:
3.1 The husband shall pay to the wife for the financial
support of the child, Adrienne Dawn Werby, born June 28, 1979 the
sum of $200.00 per week, starting on December 8, 1995, until one
or more of the following occurs:
(a) the child stops living full time with the wife, and
"living full time" includes the child living
away from home to attend an educational institution, pursue
summer employment or enjoy a vacation but otherwise maintaining a
residence with the wife;
(b) the child becomes 18 years old and ceases to be in full
time attendance at an educational institution;
(c) the child becomes 21 years old;
(d) the child completes an undergraduate degree;
(e) the child obtains full time employment;
(f) the child marries; or
(g) the child dies.
3.2 Adrienne Dawn Werby is eligible for support and
maintenance in spite of the fact that she may be receiving income
from some part time or vacation employment provided that she is
in normal full time attendance at a university, college or
accredited institution of learning.
3.3 Payments shall begin when and if Adrienne Dawn Werby,
after ceasing normal full time attendance at a university,
college or accredited institution of learning, resumes full time
attendance.
3.4 Adrienne is considered to be living with the wife even if
she has a separate residence from the wife as long as she is in
normal full time attendance at a university, college or
accredited institution of learning unless she is living with the
husband.
3.5 Payments shall recommence when and if Adrienne, after
ceasing to live with the wife starts living again with the
wife.
4. PAYMENTS
MADE PRIOR TO AGREEMENT:
4.1 The parties
acknowledge and agree that the husband has made monthly child
support payments to the wife from January 1, 1995 up to and
including December 8, 1995 in the sum of $825.00 a month. Those
support payments shall be deemed deductible by the husband as
periodic payments on his 1995 tax return and includable by the
wife on the calculation of her income for tax purposes for 1995
and shall be considered as paid and received under the provisions
of subsection 56.1 and 60.1 of the Income Tax Act
(Canada), as amended.
5.
INDEXING
...
5.1 The husband and the
wife shall contribute to the costs of post-secondary education in
Canada for each child of the marriage, which costs shall include
residence and tuition fees, expenses for books and supplies,
stationery, and computer equipment and all other educational
expenses related to the child's post-secondary education. The
amount of each parent's contribution shall be in proportion
to their total income as declared on their tax return for the
calendar year prior to the year in which these expenses are
incurred.
5.2 As long as the
husband's obligations under paragraph 3 of this Agreement for
the child, Adrienne, are paid in full and are up to date, these
payments shall be in place of the child support payment
obligations set out in paragraph 3. However, monthly support
payments, pursuant to paragraph 3 shall be paid during any month
or proportionally during any partial month when the child,
Adrienne is not actually in full time attendance at the
post-secondary institution, for example, during the summer
break.
Signed at Ottawa, Canada, this 25th day of October, 2004.
Sheridan, J.
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