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Date: 20030319
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Docket: 2001-2138(IT)I
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BETWEEN:
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MARIA E. MOSCATO,
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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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____________________________________________________________________
For the Appellant: The Appellant herself
Counsel for the Respondent: Tamara Sugunasiri
____________________________________________________________________
REASONS FOR JUDGMENT
(Delivered orally from the Bench at
Toronto, Ontario, on January 10, 2002)
Sarchuk J.
[1] These are appeals made from
assessments of tax for the Appellant's 1997 and 1998 taxation
years to include in her income support payments received pursuant
to a Court Order issued prior to May 1997. The facts in these
appeals are not in dispute:
(a) in the 1997 and
1998 taxation years, the Appellant received the amounts of $6,000
and $6,000 respectively (the "Amounts");
(b) a Court Order
issued on July 12, 1992 (the "Order") and an amending
agreement issued on December 17, 1993, required the
Appellant's Husband Anthony Moscato (the "Spouse")
to pay directly to the Appellant the amount of $600 per month for
the support of their son Ross Gregory Moscato (the
"Child");
(c) an agreement was
signed by the Appellant and the Spouse on December 27, 1996
(the "Agreement"), lowering the amount of the child
support payments to $500 per month;
(d) the Agreement
did not provide for child support payments received after April
30, 1997 to be subject to the new rules and therefore not taxable
or deductible;
(e) the Appellant
and the Spouse have not both signed, and filed with the Minister,
a T1157 form "Election for Child Support Payments" that
would allow the child support payments to be excluded from the
Appellant's income;
[2] The difficulty the Appellant has
encountered is that the legislation is absolutely precise in
terms of how pre-May 1, 1997 agreements are to be dealt
with. That is so because the calculation was done under the old
rules and the maintenance payments, paid and received, take into
account the fact that they would be considered as reportable
income by one person (the Appellant in this case) and deductible
by the other person. Now, as of May 1, 1997, you have a
completely different regime and the legislation changed
completely. Currently, the amount that was paid to the recipient
would be received tax-free and would not be deductible by the
payor. That change led, in many cases, to a reconsideration of
the existing agreement with the result that the parties and their
lawyers sought new agreements to take into account the
legislation. That is why these rules are so rigid, and they are
rigid, there is no question about it.
MS. MOSCATO:
It's just that magic date.
HIS
HONOUR:
That magic date.
MS. MOSCATO: I
don't know why it's such --
HIS
HONOUR:
And you have looked at the material but it's technical.
It's so terribly technical. It's not something any one
person would easily understand. In fact lawyers don't
understand it.
[3] There are a number of things that
have changed. In order to achieve the result that was sought by
Parliament (that is to change the law to comply with a Supreme
Court decision so that the recipients would not have to include
child support payments in their income), this four-paragraph
system was enacted. The basic effect of the legislation is, as
counsel has indicated, that to be subtracted in accordance with
the formula in paragraph 56(1)(b) of the Income Tax
Act,[1] the
child support amount must be one that became receivable under an
order or agreement on or after its commencement day and before
the end of that first year.
[4] One of the articles on the subject
contained the following comment:
In many cases agreements made before 1997 will not have a
commencement day. In accordance with the formula in paragraph
56(1)(b) child support amounts receivable under pre-May
1997 orders without a commencement day would not produce the
total support amounts as described in paragraph (a), thus
such child support amounts will continue to be included in
computing the recipient's income. However, a commencement day
will exist for certain orders made before May 1997 in
limited circumstances.
For example, in the type of an agreement that you signed, that
is pre-April 30, 1997, a change to the new regime can occur only
where the recipient and payor jointly elect in prescribed form
and manner (that is form T1157) and file the election with the
Minister. When done, the day the parties specify in the election
to be the commencement day is the one that will be used. The
second way it could be done is if the order was varied after
April 1997 to change the child support amount payable. The
day on which the first payment is to be made becomes a
commencement day. As well, if a subsequent order is made after
April 1997 in effect changing the total support amounts, the
commencement day of that order would bring you into the new
regime. Lastly, where the order, agreement or any variation
thereof specifies a commencement date for these purposes, the
date so stated. In other words, if your order had stated "as
of May 1 or May 15" then it would have been effective. You
could have signed the agreement in issue, as you did on December
27, 1996, and you could have deliberately stipulated therein a
specific commencement day after May 1, 1997 and that would have
been acceptable.
[6] When you look at the whole picture
and how specific Parliament was in setting the rules, even if
there had been an oral agreement as you have suggested in your
case, it just would not be sufficient in law. That is the problem
that you really face, since even accepting your testimony, this
document does not reflect the agreement which you say was
actually made, i.e. that the amounts would be within the new
scheme. Oral agreements do not wash for the purposes of virtually
any of the maintenance sections in the Income Tax Act.
Oral agreements will just not do, there has to be a written
agreement. You are not the first one who finds herself in a
situation such as yours. You do not want to retain a lawyer, it
is expensive, everybody understands that. You trust the other
party. You enter into an oral agreement and then somewhere down
the road it ends up in this court. And the court has to say you
cannot deduct maintenance which is paid on some basis other than
as a result of a court order or a written maintenance agreement.
It is not an easy case for us to deal with. We recognize that
there was a long period of time when this matter could have been
rectified. But unfortunately there is nothing in law that the
court can do to alleviate your situation. The agreement that you
have is in writing, it does not comply with the requirements of
the Act, and is not even close unfortunately. This court
is not a court of equity. We do not have a broad jurisdiction
such as the Ontario Superior Courts and we are limited to dealing
with a very simple question, has the taxpayer complied with the
relevant provisions that will entitle her to the deduction that
she is seeking, or the exemption that she is seeking. And if that
does not occur, I do not have the authority to say,
notwithstanding that fact in this circumstance, it would only be
fair and just to allow the appeals. I do not have that
authority.
[7] So unfortunately, as you have no
doubt gathered by now, your appeals must be dismissed.
HIS
HONOUR:
Now I suggest you find yourself a lawyer and take steps to,
because this agreement is still in effect I assume. Are
maintenance payments still being made?
MS. MOSCATO:
Yes.
HIS
HONOUR:
Unless you take steps to change this by going to the Ontario
Court, you are going to continue to have to take it into income.
So you had better move as quickly as possible. And the fact that
you can get that order retroactive before April 1 you might
salvage the year 2000. I'm sorry Madam, but that
is -
MS. MOSCATO: You
know, I thought this law was supposed to be for mothers but
it's not.
HIS
HONOUR:
I'm sorry?
MS. MOSCATO: No,
I'm sorry. I just can't believe that I'm going to
lose a whole year's support in effect. I'm just going to
have to find $6,000.00.
Signed at Ottawa, Canada, this 19th day of March, 2003.
J.T.C.C.
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