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Citation: 2003TCC53
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Date: 20030218
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Docket: 2002-3099(IT)I
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BETWEEN:
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DAVID M. KRUTKO,
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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
Campbell, J.
[1] The Appellant and
his common-law spouse, Valerie Yakeleya, separated in July 1995.
There were four children of this union born in 1982, 1989, 1991
and 1993. The oldest child has cerebral palsy, is confined to a
wheelchair and is now living in a special care institution in
Inuvik. When they separated, the Appellant moved back to Fort
MacPherson and his spouse, together with the children, moved to
Fort Norman. The Appellant stated that he and his spouse had a
verbal understanding that he would help support the children.
Eventually his spouse made a court application by originating
notice of motion in March 1997, requesting sole custody of the
children and child support (Exhibit A-1). After the originating
notice was filed there was correspondence between their
respective solicitors attempting to negotiate a settlement. Two
of these letters (Exhibits A-3 and A-4) reveal that the
solicitors were aware of the approaching change in the tax
treatment of support payments and on behalf of their clients were
attempting to negotiate and settle support payments prior to
these changes.
[2] By Consent Order
("the first order") (Exhibit A-5) dated March 21, 1997
Justice J.E. Richard ordered:
1. The
Respondent, David Krutko, shall pay to the Applicant, Valerie
Yakeleya, child support for the children of the relationship in
the amount of $1,500.00 for the month of April, 1997 only,
payable on April 1st, 1997.
2. The balance of
the relief sought by the Applicant in the Originating Notice of
Motion filed March 5th, 1997 shall be adjourned until Friday, May
2nd, 1997.
[3] Subsequent to
this first order, letters continued between the solicitors in an
attempt to reach a settlement (Exhibits A-6, A-7 and A-8). Again
it is evident in the correspondence that the solicitors were
aware of the imminent changes in the treatment of child support
payments for tax purposes.
[4] On May 9, 1997,
an order of the Supreme Court of the Northwest Territories
("the second order") (Exhibit A-9) issued. In its
entirety it reads as follows:
ORDER
UPON the application of the Applicant,
Valerie Yakeleya; AND UPON hearing Jill Murray, counsel on behalf
of the Applicant and Lucy Austin, counsel on behalf of the
Respondent, David Krutko; AND UPON having read the affidavit of
Valerie Yakeleya, filed:
IT IS ORDERED AS FOLLOWS:
1. The child
support Order of this Court dated March 21st, 1997 is
continued and the Respondent shall continue to pay $1,500.00 per
month for the support of the children for the months of May and
June of 1997.
2. The balance of
the relief sought by the Applicant in the Originating Notice of
Motion filed March 5th, 1997 shall be adjourned until Friday,
June 27th, 1997.
[5] On June 10, 1997,
a short one-page separation agreement (Exhibit A-11) drafted by
the Appellant's accountant, was signed by both the Appellant
and his spouse. It reduced the support considerably from the
amount ordered and specified that the Appellant could deduct the
support payments. Although signed by both parties, this document
was not witnessed and there is no indication that either received
independent legal advice. I give no weight to this document.
[6] By Consent Order
dated August 22, 1997 ("the third order")
(Exhibit A-14) Justice Richard ordered the
following:
CONSENT ORDER
UPON the application of Valerie Yakeleya; AND
UPON hearing from Jill Murray and Lucy Austin counsel for the
parties and noting the consent of counsel for the parties
endorsed hereon; IT IS HEREBY ORDERED THAT:
1. The parties
shall have joint custody of the children Gordie Krutko born
September 13, 1992, Michelle Krutko born August 5, 1993, Joanne
Krutko born September 10, 1991, Laura Krutko born November
19, 1989 with the children remaining in the day to day care and
control of the Applicant;
2. The Respondent
shall have liberal and generous access to the children as may be
agreed upon by the parties from time to time and failing
agreement as may be ordered by this Court;
3. The Respondent
will pay child support in the sum of $1,500.00 per month for the
support of the children Michelle Krutko, Joanne Krutko
and Laura Krutko commencing on September 1, 1997 and
continuing on the first day of each month thereafter until
further Order of this Court;
4. Recognizing
that the child Gordie Krutko is handicapped and currently
institutionalized, any further support required from the
Respondent to meet the needs of the child Gordie Krutko shall be
agreed upon by the parties and failing agreement as may be
determined by this Court.
[7] In the 1998, 1999
and 2000 taxation years, the Appellant paid support of
$18,400.00, $20,300.00 and $18,000.00 respectively. He deducted
these amounts in computing his income. The Minister reassessed
the Appellant on the basis that these deductions for support
payments did not meet the requirements of
paragraph 60(b) or section 60.1 of the
Act.
[8] The issue is
whether these amounts are deductible by the Appellant in the
1998, 1999 and 2000 taxation years.
[9] Before May 1997,
spouses were entitled to deduct payments which were made to
separated or ex-spouses for the support of the children. The
recipient of these support payments was required to include the
amount of these support payments in their income. This is often
referred to as the old régime or inclusion/deduction
system. As a result of the decision of the Supreme Court of
Canada in Thibaudeau v. The Queen, [1995] 2 S.C.R. 627
(S.C.C.), Parliament eliminated the old régime or
inclusion/deduction of support payments made pursuant to an
agreement or order made after April 30, 1997 that contemplated a
commencement date. The Income Tax Act was amended to
provide that if a pre-May 1997 agreement remained unchanged, the
inclusion/deduction system prevailed. If the parties entered into
a new agreement or if a new court order issued or if an old
agreement was altered in a particular way, the old régime
no longer applied and only those payments made up to the
commencement date as defined in the Act were deducted by
the payor and included by the recipient.
[10] The terms "child
support amount", "commencement date" and
"support amount" are defined in subsection 56.1(4) of
the Act 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 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.
"commencement date" 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 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.
[11] Paragraph 60(b)
of the Act reads as follows:
60(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;
[12] The Appellant's
primary argument is that the child support payments in 1998, 1999
and 2000 were all made pursuant to the first order of
March 21, 1997, and that the second and third orders merely
confirmed and continued the support obligations contained in the
first order. In addition the Appellant contended that there is no
commencement date specified in this first order.
Analysis:
[13] The first order simply
ordered a child support payment for the month of April 1997. It
did not use the word "commence" and all other relief
was adjourned. This order either contemplated the issues being
settled between the parties or resolved by the court on May 2,
1997. The second order did use the word "continue". In
fact the first order was continued and the Appellant's
payments were continued in the same amount for two more months,
May and June 1997. This second order is clearly a continuation of
the first one. There is a connection between the two orders which
is contemplated in the wording of the second order. This second
order deals with support for two months only and again adjourns
all other matters to June 27, 1997. Then we have the third order.
It is exhaustive and resolves the issues of custody, access and
support. The word "commencing" is used in establishing
the first support payment under this order. The word
"continuing" is used to continue these payments after
the commencement date but it is not used to continue either the
first or second orders or both. In addition the first two orders
were for support for the four children. In this third order the
support, although in the same amount as the first and second
orders, was for three children only. The order contains an
entirely separate paragraph concerning potential support
provisions for the fourth child.
[14] The third order
clearly contains a commencement date and the wording of the order
is quite specific in this regard. There is no specific wording
used that could point to a conclusion that this order intended to
continue either of the first or second orders or both, either
expressly or by implication. I view it as a stand-alone
order, encompassing all of the issues which had remained
unresolved between the parties. There is no reference to the
first two orders. The support payments of $1,500.00 monthly are
now for three children instead of four. Support for the month of
April was addressed in the first order and the months of May and
June in the second order. The third order commenced payments on
September 1, 1997. The months of July and August 1997 were not
addressed. The Appellant contends that during these months the
children were with him and he was not paying support. However the
third order is silent as to those July and August payments. This
may be viewed as creating a break in support being paid on a
periodic basis. I do not need to decide on this as I have
concluded that the third agreement is a stand-alone order made
after April 1997, containing a commencement date. The first and
second orders were, for all intents and purposes, interim orders
only. They contained very little detail except for an amount of
support for one month in the first order and two months in the
second order. They were interim measures only and are superseded
by the final order. Because of the wording in the third order, I
do not view the provisions in the first and second orders which
adjourn the remaining relief, as a link between these orders.
[15] It is clear from the
evidence that negotiations were ongoing both before and after the
first and second orders. The amount of support remains the same
throughout but it is clear from the correspondence between the
lawyers that the amount continued to be a contentious issue. The
amount in the first order was never the settled and agreed upon
amount. The correspondence suggests various amounts were offered
between the parties. In any event I have concluded that the
amount of support was varied considerably as it was now for three
children and not four.
[16] Even if I accepted
that the third order is not a stand-alone order, but a
continuation of the first order, I am left with the wording of
the third order which contains a clear statement of the
commencement date which is after April 1997.
[17] The Appellant relied
on the decision in Mossman v. Canada, [2002] T.C.J. No.
371. That case placed great reliance on the word
"continue" used in the 1998 Agreement. Use of the
word "continue" was pivotal to the decision in
Mossman. In the case before me, although the word
"continue" had been used in the second order, it is
absent in the third order, where instead the word
"commencing" is utilized.
[18] It is also interesting
that although the correspondence between the solicitors contains
clear references to the impending legislative changes, the third
order is silent as to the potential tax treatment of these
payments.
[19] Although the Appellant
argued that it was the intention of the parties, their lawyers
and accountants, that the Appellant be permitted to deduct these
payments, his eligibility to deduct the support amounts is
determined by the specific provisions of the Act.
[20] For the reasons given,
the appeals are dismissed.
Signed at Ottawa, Canada, this 18th day of
February 2003.
J.T.C.C.
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