Date: 20010814
Docket: 2001-400-IT-I
BETWEEN:
JOHN DUNFIELD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bell, J.T.C.C.
ISSUE:
[1]
The issue is whether the Appellant is entitled to deduct the
amount of $3,600 paid as "child maintenance" in
calculating his income for the 1998 taxation year.
GENERAL:
[2]
All section references relate to the Income Tax Act
("Act") unless otherwise stated.
FACTS:
[3]
The Appellant, John Dunfield ("Dunfield"), and Shelley
Davies ("Davies") are the biological parents of Sydney
Elizabeth Grace Davies, who was born on July 3, 1996. They have
never been married and they have never cohabited in a conjugal
relationship, always having retained separate residences. On
September 19, 1996, the Appellant executed a document between
himself and Davies entitled "Parenting Agreement"
("Agreement"). Davies executed the Agreement on October
4, 1996. It provided for the payment of child maintenance in the
amount of $200 per month commencing September 1, 1996 through to
and including February 1, 1997 and the sum of $300 per month
commencing March 1, 1997 and continuing until and including March
1, 2000.
[4]
The Appellant, in his 1998 income tax return, claimed a deduction
in the amount of $3,600. Upon the Minister of National Revenue
("Minister") disallowing this deduction and the
Appellant having filed a Notice of Objection, all in December,
1999, the Appellant applied to The Queen's Bench (Family
Division), Brandon Centre ("Queen's Bench")[1]. On May 8, 2000 it
issued the following Consent Order ("Order") with
respect to the Agreement:
The Agreement between the Parties, dated October 4, 1996 is
hereby declared to be an Order of this court effective the date
upon which the Agreement was entered, October 4, 1996, and that
it be held to be of the same force and effect as if originally
entered pursuant to Court Order in accordance with section
60(c) of the Income Tax Act as it was then written,
and that the payment of child support of $200.00 per month
commencing September 1, 1996 through to and including February 1,
1997 and the sum of $300.00 per month commencing March 1, 1997
and continuing until and including March 1, 2000, is declared to
be made in accordance with this section and subject to the income
inclusion and deduction provisions of the Income Tax Act
in force at that time.
APPELLANT'S SUBMISSIONS:
[5]
Appellant's counsel submitted that the Agreement clearly
intended that the payments be deductible by the Appellant and
taxable to the recipient. She submitted that the Order was made
by a court of competent jurisdiction in accordance with the laws
of Manitoba and that it deemed the Agreement to be an order of
the Queen's Bench effective the date of its execution,
October 4, 1996. She then said that the payments in 1998 were
deductible pursuant to the provisions of paragraph 60(c),
which, she stated, provided that support payments made pursuant
to an order of a competent tribunal were deductible by the payor
and taxable to the recipient. Counsel said that the Order
... effectively and retroactively declares the payments made
to be pursuant to a court order from the date of the agreement
forward.
RESPONDENT'S SUBMISSIONS:
[6]
Respondent's counsel submitted that the amount was not
deductible pursuant to paragraph 60(b) of the Act.
It reads as follows:
(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 payment
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
taxpayer year;
[7]
She argued that it provided for the deduction of support as
determined by the formula A - (B+C). She said that A was
the total of all support amounts paid after 1996, B was the total
of all child support amounts paid after the commencement day and
C was the total of support amounts paid after 1996 that were
deductible in a preceding taxation year. She stated that the
payments do not come within the definition of "support
amount" in section 56.1(4)[2] as the amounts were not receivable under an
order made by a competent tribunal in accordance with the laws of
a province as required by paragraph (b) of the definition.
She submitted that for the purpose of the above formula the
amounts are nil for each of A, B and C, and that there was no
amount which the Appellant was entitled to deduct in 1998.
[8]
Counsel then submitted, in the alternative, that if the amounts
fell within the definition of "support amount" in
subsection 56.1(4) they would also fall within the definition of
"child support amount" in subsection 56.1(4). She said
that in the equation in paragraph 60(b) the child support
amounts would be subtracted from the total of support amounts
with the result that they would not be deductible.
[9]
Counsel also argued that the Order did
not accomplish the intended effect of retroactively deeming
the payment to have been received under an order made in
accordance with former paragraph 60(c),
and that the Appellant was not entitled to a deduction in the
1998 taxation year.
[10] She
submitted further that the definition of "commencement
day" in subsection 56.1(4) specifically provided that the
"commencement day" of an order made after April 1997 is
the day it is made. She said that the definition of
"commencement day" therefore precluded a finding that
the Order was made on October 4, 1996 or at any time other than
May 8, 2000. She concluded this portion of her submission by
saying that there was no mechanism in the definition of
"commencement day" for deeming an order to be made at
any other time.
[11] Further,
counsel submitted that subsection 60.1(3) specifically
contemplated and provided for retroactive recognition of prior
payments and that because the amounts deducted by the Appellant
did not fall within the description in that provision, no
retroactive recognition of those payments could be made.
ANALYSIS AND CONCLUSION:
[12] The
legislation in this area of tax law was, before the 1997
amendments, complex and bewildering to those unfortunately
clutched by its talons. Now, it is almost incomprehensible.
Planned legislative abstruseness could not have ascended
the Olympian heights scaled by both the substantive and
implementing provisions respecting the income inclusion and
deduction of maintenance payments. The Minister, for some
unexplained reason, decided to and did, reassess the Appellant
disallowing the deduction claimed in 1998 without having
reassessed Davies to include the $3,600 in her income.[3] Assuming that Davies
would be reassessed to remove the payments from her income if the
Appellant loses this appeal, this appears to have been done with
no increase to the fiscus but because of an ungenerous approach
to the application of rules while ignoring the reparation steps
taken. Thousands of taxpayers are affected by this maze of
legislative pitfalls. Many of them, for economic reasons, are
obliged to represent themselves in court. What chance do they
have of making any sense of these provisions when lawyers and
judges are driven to the wall in their attempts to understand and
apply them? The agonies of domestic combatant strife are
debilitating and depressing. No one in that position needs a
torpefying journey through this legislative labyrinth.
[13] The
Appellant relied upon a combination of paragraph 60(c) of
the Act and the court Order as entitling him to the
deduction. That paragraph reads as follows:
There may be deducted in computing a taxpayer's income for
a taxation year ... an amount paid by the taxpayer in the
taxation year as an allowance payable on a periodic basis for the
maintenance of the recipient, children, of the recipient or both
recipient and the children if
(i)
at the time the amount was paid and throughout the remainder of
the year the taxpayer was living separate and apart from the
recipient,
(ii)
the taxpayer is the natural parent of a child of the recipient,
and
(iii)
the amount was received under an order made by a competent
tribunal in accordance with the laws of a province.
He cannot succeed on that basis because paragraph 60(c)
was replaced before 1998. Sections 10(1) and 10(2) of the
Income Tax Budget Amendments Act, 1996
provided:
10(1) Paragraphs 60(b) and (c) of the Act are
replaced by:
paragraph 60(b) above.
10(2) Subsection (1) applies to amounts received after 1996.[4]
[14] By virtue
of paragraph 60(b), the amount deductible is equal to the
cumulative sum of all support amounts paid after 1996 minus the
total of the child support payments that became payable after the
commencement date and all support amounts made after 1996 that
were deductible in years prior to the relevant taxation year.
[15] The
expression "child support amount" is 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 former spouse of the payer or who is
a parent of a child of whom the payer is a natural parent.
[emphasis added]
[16] The term
"support amount" is found in the same subsection and
reads, in part, as follows:
"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
...
(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.
[17]
Accordingly, in order to be a "support amount" and,
therefore, a "child support amount", the payment must
be "receivable under an order made by a competent tribunal
in accordance with the laws of" Manitoba. The question is
whether the payment of $3,600 was so made. When paid in 1998,
before issue of the Order, such payments, having been made
pursuant to the Agreement, were not made under an order of a
competent tribunal.
[18] This
leads us to the examination of the effect of the May 8, 2000
Order.
[19] The
Dale v. Canada, (1997) 51 DTC 5252 decision
of the Federal Court of Appeal is a leading authority on the
issue of the impact of retroactive superior court decisions on
tax matters. Robertson J.A., at 5255, stated the law on the
matter as follows:
As a matter of law both the Tax Court and this Court are
required to give effect to orders issued by the superior courts
of the provinces.
...
In determining whether a legal transaction will be recognized
for tax purposes one must turn to the law as found in the
jurisdiction in which the transaction is consummated. ... As
for the Minister, he must accept the legal results which flow
from the proper application of common law and equitable
principles, as well as the interpretation of legislative
provisions. This leads me to the question of whether the Minister
is bound by an order issued by a superior court, which order has
its origins in the interpretation and application of the
provisions of a provincial statute.
In the court below, the Minister argued that the order of the
Nova Scotia Supreme Court might be binding as between the
taxpayers and the Dale Corporation but not on him. Judge Bowman
rejected that argument, and in my opinion rightly so...
[20] Robertson
J.A. further referred to principles expressed in the Supreme
Court of Canada case of Wilson v. The Queen, [1983]
2 S.C.R. 594 and said, at 5256:
The first principle is that the record of a superior court is
to be treated as "absolute verity so long as it stands
unreversed" (per McIntyre J. at 599, quoting Monnin J.A. in
the Manitoba Court of Appeal). Second, an order which has not
been set aside must receive full effect according to its terms
(at 604). Third, the order is binding on all the world (at 601,
citing Bird J.A. in Canadian Transport Co. v. Alsbury
(1952), [1953] 1 D.L.R. 385 (B.C. C.A.) (B.C.C.A.) at 418).
Fourth, a collateral attack is deemed to include proceedings
other than those whose specific object is to effect a reversal or
nullification of the order. At page 599 McIntyre held as
follows:
It has long been a fundamental rule that a court order, made
by a court having jurisdiction to make it, stands and is binding
and conclusive unless it is set aside on appeal or lawfully
quashed. It is also well settled in the authorities that such an
order may not be attacked collaterally - and a collateral
attack may be described as an attack made in proceedings other
than those whose specific object is the reversal, variation, or
nullification of the order or judgment.
[21] Finally,
Robertson J.A. made the following observations:
Rarely are guiding rules or principles expressed as absolutes
and so it is proper to ask whether the prohibition against
collateral attacks is subject to exceptions. ... I need only
address the Minister's "jurisdictional" attack.
As I understand it, the Minister's position is that a court
order which has the effect of rewriting fiscal history is not
binding on him. Based on the existing authorities, he posits that
a court order cannot create a state of affairs in an earlier year
that did not in fact exist.
It seems only logical that a court would decline the
invitation to grant a retroactive order which has the clear legal
effect of rewriting fiscal history. Assuming that such an order
were granted then it would be proper to ask whether the Minister
is entitled to ignore it for taxation purposes. One might be
tempted to permit an attack on the ground of fiscal revisionism
where it could be shown that the order was obtained by
non-disclosure or misrepresentation. More likely than not
revisionist orders will be obtained on consent, or in
circumstances where it is likely that the tax ramifications of
the order were not placed squarely before the judge, or where the
judge was obviously sympathetic to the taxpayer's situation.
There are two reported tax cases decided prior to Wilson
which aptly illustrate the judicial sympathy scenario: see
Bentley v. Minister of National Revenue (1954), 54
D.T.C. 510 (T.A.B.) and Hobbs v. Minister of National
Revenue, (1970), 70 D.T.C. 1744 (T.A.B.). In both cases it is
obvious that there was no legal foundation, statutory or
otherwise, for making the retroactive orders requested. Assuming
without deciding that those decisions come within the exceptional
category recognized in Wilson, they are readily
distinguishable from the case under appeal.
[22] Further,
in A.G. Canada v. Juliar, 2000 DTC 6589 (Ont. C.A.)
retroactive rectification was granted to achieve reversal of
unintended tax consequences.
[23] It is
obvious from Dale and Sussex Square Apartments v.
The Queen, 2000 DTC 6548, that courts with jurisdiction in
federal tax matters have given effect to such rectification
orders made by provincial courts
[24] It seems
clear, from studying the Order, that the tax consequences were
apparent to the judge, thereby weakening any suggested attack on
the basis of "fiscal revisionism". The concept of
"fiscal revisionism" cannot be applied to the Appellant
who, in 1996, sought to ensure deductibility, then and for
subsequent years.
[25] Based
upon the foregoing authorities, with particular reference to the
principles enunciated in Dale, I conclude that the order
of Mykle, J. of the Queen's Bench was made under the Manitoba
Family Maintenance Act by a "competent
tribunal". That Act describes "court" as the
Manitoba Court of Queen's Bench. The consent Order was
properly made in accordance "with the laws of a
province".[5]
Accordingly, the Order was effective as of the date of the
Agreement.
[26] It is now
necessary to examine paragraph 60(b) to determine the
amounts described in A, B and C. In so doing I conclude that:
A, the total "support amount", is the sum of $3,600
for 1998 plus 1997 payments, being amounts payable as an
allowance on a periodic basis for the maintenance of the child,
the payor Appellant being a natural parent of the recipient, the
amounts being both payable and receivable under an order made by
a competent tribunal in accordance with the laws of a
province.
B is the total "child support amount" that became
payable by the taxpayer ... under an order on or after its
commencement day.
[27] The term
"commencement day" is defined in subsection 56.1(4) of
the Act as follows:
"commencement day" 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.
[28] The
effect of Justice Mykle's order declaring the October 4, 1996
Agreement to be an order of the Queen's Bench, effective the
date upon which the agreement was entered, namely October 4,
1996, is that there is no "commencement date" for the
purposes of B. Therefore, the amount of B is zero.
C is the total support amount paid after 1996 that was
deductible in computing income for a preceding year. It is
assumed that the word "deductible" applies to the 1997
payments under the conclusion I have reached in respect of Judge
Mykle's order. Accordingly, C would represent the total
payments made before 1998. Since C includes only amounts paid
after 1996 it must be the amount of the 1997 payments.
[29] The
result is that A represents all amounts paid after 1996, B is nil
and C is amounts deductible before 1998. The result is that the
formula produces the amount paid in 1998, namely, $3,600.[6]
[30] To
summarize:
(1) I
conclude that the portion of the Order reading:
The Agreement between the Parties, dated October 4, 1996 is
hereby declared to be an Order of this court effective the date
upon which the Agreement was entered, October 4, 1996,
created an order retroactive to and effective on and from that
date.
(2)
The Appellant is entitled, for his 1998 taxation year, to deduct
the amount of $3,600 under paragraph 60(b).
[31]
Accordingly, the appeal is allowed with costs.
Signed at Toronto, Canada this 14th day of August, 2001.
"R.D. Bell"
J.T.C.C.
COURT FILE
NO.:
2001-400(IT)I
STYLE OF
CAUSE:
John Dunfield v. Her Majesty the Queen
PLACE OF
HEARING:
Brandon, Manitoba
DATE OF
HEARING:
May 29, 2001
REASONS FOR JUDGMENT
BY:
The Honourable Judge R.D. Bell
DATE OF
JUDGMENT:
August 14, 2001
APPEARANCES:
Counsel for the
Appellant:
Pat Fraser
Counsel for the
Respondent:
Angela Evans
COUNSEL OF RECORD:
For the
Appellant:
Name:
Pat Fraser
Firm:
Meighen, Haddad & Co.
Brandon, Manitoba
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-400(IT)I
BETWEEN:
JOHN DUNFIELD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on May 29, 2001 at Brandon,
Manitoba, by
the Honourable Judge R.D. Bell
Appearances
Counsel for the
Appellant:
Pat Fraser
Counsel for the
Respondent:
Angela Evans
JUDGMENT
The
appeal from the reassessment made under the Income Tax Act
for the 1998 taxation year is allowed, with costs, and the
reassessment is referred back to the Minister of National Revenue
for reconsideration and reassessment in accordance with the
attached Reasons for Judgment.
Signed at Toronto, Ontario this 14th day of August, 2001.
J.T.C.C.
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