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Citation: 2004TCC120
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Date: 20040205
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Docket: 2002-4475(IT)I
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BETWEEN:
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IAN MIDDLETON,
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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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LESLEY MIDDLETON,
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Third party.
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REASONS FOR JUDGMENT
Paris, J.
[1] Mr. Ian Middleton is appealing the
disallowance of deductions totalling $11,375 in his 2000 taxation
year, which he claimed in respect of child support payments made
to his ex-spouse, Ms. Lesley Middleton. Ms. Middleton was joined
as a party to the appeal pursuant to subsection 174(1) of the
Income Tax Act (the "Act") at the request
of the Respondent.
[2] The issue in this appeal is
whether the payments made by Mr. Middleton were made
pursuant to an agreement entered into with his ex-spouse in 1987
or pursuant to a subsequent agreement dated August 22, 2000. If
the payments were paid under the former agreement, the parties
are in agreement that the payments would be deductible to
Mr. Middleton in accordance with paragraph 60(b) of
the Act. If the payments were made under the latter
agreement the payments would not be deductible.
[3] Mr. and Ms. Middleton were married
in 1982 and had a son in 1984. They separated in 1987. By a
written agreement dated September 30, 1987
Mr. Middleton agreed to pay Ms. Middleton child support
of $300 per month. He paid the child support for approximately
four years, and then ceased. He had remarried and had children by
his second spouse at that time.
[4] In April 2000 Ms. Middleton,
through her solicitor, advised Mr. Middleton that he was in
arrears of child support in the amount of $26,400 and that she
wished to resolve the matter. Subsequently, on August 22, 2000
Mr. and Ms. Middleton entered into a written agreement by
which he agreed to pay her $10,000 "in full satisfaction of
any and all arrears of child support" up to June 30, 2000.
He also agreed to pay her child support of $275 per month
commencing July 1, 2000.
[5] Mr. Middleton testified that, in
the discussions he had with Ms. Middleton's lawyer concerning
the resolution of the arrears issue, he was told that he would be
able to deduct the arrears payment and that the original
agreement did not need to be changed. He said that he was aware
that if the agreement were altered that he would not be able to
claim the amounts as deductions.
[6] Ms. Middleton did not include the
support payments she received from Mr. Middleton in 2000 in
her income tax return. She testified that she never witnessed any
discussion between her lawyer and Mr. Middleton in which he
was told that the support payments would be deductible to
him.
[7] The position of the Minister in
this case is that the $10,000 payment made under the August 22,
2000 agreement was a final settlement in regard to the arrears
owed by Mr. Middleton and that it was not paid as an allowance on
a periodic basis for the maintenance of the child of the marriage
as required under paragraph 60(b) of the
Act.
Paragraph 60(b) of the Act read as follows:
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;
[8] The terms "child support
amount" and "support amount" are
defined in subsection 56.1(4) of the Act:
"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 common-law partner or former spouse
or common-law partner of the payer or who is a parent of a child
of whom the payer is a natural parent.
"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 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.
[9] Counsel relied on the decision of
this Court in Widmer v. Canada,
[1995] T.C.J. No. 1115 (Q.L.). There, the taxpayer
accepted a $15,000 settlement from her former spouse in lieu of
the $50,590 owed to her for outstanding child support payments.
The Minister included the $15,000 in the taxpayer's income.
The taxpayer argued that the payment was neither a periodic
payment nor a maintenance payment but was a lump sum settlement
and therefore was not to be included in her income. My colleague
stated at paragraph 15 that:
... When the amount actually received ($15,000) is so
different from and so much smaller than the amount owed
($50,590), I cannot regard the amount received as having the same
character as the amount owed. In other words, I cannot regard the
$15,000 amount received by the Appellant as having been received
for the maintenance of the three children. In my opinion, this
small amount was paid by David in one lump sum firstly, to obtain
a release from his very real liability to pay the remaining
$35,590, and secondly, to obtain a reduction in the aggregate
amount of his monthly maintenance payments from $795 per month to
$600 per month. In summary, the $15,000 amount was paid to obtain
a release from existing obligations and a reduction in future
obligations, and not for the maintenance of the three
children.
[10] The evidence in this case is that Mr.
Middleton paid $10,000 in order to obtain a release of his
obligation to pay support arrears of $26,400, and to obtain a
reduction in the monthly support payments to $275 from $300. The
wording of the 2000 agreement supports this conclusion. The
amount was not paid for the maintenance of their child and
therefore does not fall within the definition of "support
amount" found in the Act. It is not relevant that
Mr. Middleton did not intend to vary the tax treatment of
the support amount. The definition of the term "support
amount" is clear and does not include an amount that is not
paid on a periodic basis for the maintenance of a former spouse
or child of the recipient.
[11] Even if I had found that the payments
made by Mr. Middleton in 2000 were support amounts, they still
would not have been deductible to him because the August 22, 2000
agreement varied the terms of the 1987 agreement in terms of the
amount of the monthly support payments Mr. Middleton was
obligated to make. The fact that the earlier agreement was varied
after May 1997 caused the agreement to have a "commencement
day", pursuant to subsection 56.1(4) of the Act which
reads (in part):
"commencement day" at any time of an
agreement or order means
(a) ...
(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
...
[12] The 2000 agreement required the first
payment of the revised child support amount on July 1, 2000. This
would be the commencement day of the agreement, and amounts that
became payable after this date are not deductible to the payor.
The $10,000 payment in issue became payable forthwith after the
execution of the agreement in August 2000, which is after its
commencement day and therefore it would not be deductible from
the Appellant's income by reason of paragraph 60(b) of
the Act.
[13] The appeal is therefore dismissed.
Signed at Ottawa, Canada, on this 5th day of February
2004.
Paris, J.
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