Date: 20010810
Docket: 96-1998-IT-I
BETWEEN:
DIANE MARCIL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
(delivered orally from the benchon February 10,
2000, at Montréal, Quebec,
and amended for greater clarity)
Archambault, J.T.C.C.
[1]
Diane Marcil is challenging assessments made by the Minister of
National Revenue (Minister) for the 1991 and 1992 taxation
years. In Ms. Marcil's income, the Minister included
maintenance payments of $6,000 for 1991 and $10,051 for 1992 that
had been made to her two children. Ms. Marcil's position is
that the assessments are wrong because the amounts in question
should not be included in her income since she did not receive
them. There is no dispute concerning the actual amounts set out
in the assessments.
Facts
[2]
At the start of the hearing, the following facts stated in the
Reply to the Notice of Appeal were admitted by Ms. Marcil's
agent:
[TRANSLATION]
18.
In making the assessments at issue, the Minister assumed the
following facts, inter alia:
(a) The appellant married Claude Berardelli in 1973. They had
two children, the first in 1977 and the second in 1979.
(b) In 1987, the appellant instituted divorce proceedings.
(d) On June 27, 1991, the Superior Court of Quebec rendered
judgment granting the divorce and formalizing a consent regarding
corollary relief signed the same day, which read as follows:
5. As of the
signature of this agreement, the respondent shall pay, for the
sole benefit of the two (2) children, MARTIN BERARDELLI AND
ALEXANDRE BERARDELLI, five hundred dollars ($500.00) a month
maintenance for each child, such payment to be made by cheque
made out to each of them dated the 1st of each month, starting on
July 1, 1991;
(f) The appellant's former spouse defaulted on several
maintenance payments, and it was the appellant who then took
steps to have the amounts collected by Quebec's collector of
support.
[3]
Ms. Marcil testified at the hearing, and the evidence shows that
the children of the marriage were minors during the relevant
years and did not intervene in the consent regarding corollary
relief of June 27, 1991. Certain cheques written by Ms.
Marcil's former spouse and payable to Martin and Alexandre
were filed as exhibits. Some of them had been endorsed by the
children and deposited in an account opened in their name:
[TRANSLATION] "Alexandre and Martin in trust". The
people authorized to write cheques on that account were the two
children and their mother. Ms. Marcil also confirmed that her two
children had an automated teller card giving them access to the
money paid to them by their father.
[4]
Ms. Marcil admitted as well that she exercised parental control
over her children with regard to the use made of the money
deposited in their account. However, she acknowledged that she
sometimes had to negotiate with them concerning the use of the
money, which was supposed to be mainly for school activities and
for buying school lunches, books and clothing.
[5]
Ms. Marcil further stated that the $500 that each child received
from his father was not enough to meet all their needs. She
estimated that it cost about $1,500 a month to meet their
needs.
Analysis
[6]
Paragraph 56(1)(b) of the Income Tax Act (Act) read
as follows in 1991 and 1992:
56(1) Without restricting the generality of section 3,
there shall be included in computing the income of a taxpayer for
a taxation year,
(b) any amount received by the taxpayer in the
year, pursuant to a decree, order or judgment of a
competent tribunal or pursuant to a written agreement, as alimony
or other allowance payable on a periodic basis for the
maintenance of the recipient thereof, children of the marriage,
or both the recipient and children of the marriage, if the
recipient was living apart from, and was separated pursuant to a
divorce, judicial separation or written separation agreement
from, the spouse or former spouse required to make the payment at
the time the payment was received and throughout the reminder of
the year.
[Emphasis added.]
[7]
The first issue to be decided is therefore whether the amounts
included by the Minister meet the conditions set out in that
paragraph for being taxable. The evidence shows that the amounts
were received not by Ms. Marcil but rather by her children. They
were paid by the father pursuant to an order by the Superior
Court. The money belonged to the children, and the fact that
Ms. Marcil may have exercised parental authority over her
children as regards the use of the money does not mean that, for
the purposes of the Act, the money must be considered to have
been received by her.
[8]
In her argument to the Court in support of her position, counsel
for the respondent focused mainly on the application of
subsection 56.1(1) of the Act, which states the following:
56.1(1) Maintenance.
(1) Where, after May 6, 1974, a decree, order, judgment
or written agreement described in paragraph 56(1)(b),
(c) or (c.1), or any variation thereof, has been
made providing for the periodic payment of an amount
(a) to a taxpayer by a person who is
(i) the taxpayer's spouse or former spouse, or
(ii) where the amount is paid pursuant to an order made by a
competent tribunal after February 10, 1988 in accordance with the
laws of a province, an individual of the opposite sex who
(A) before the date of the order cohabited with the taxpayer
in a conjugal relationship, or
(B) is the natural parent of a child of the taxpayer, or
(b) for the benefit of the taxpayer, children in the
custody of the taxpayer or both the taxpayer and those
children,
the amount or any part thereof, when paid, shall be deemed,
for the purposes of paragraphs 56(1)(b), (c) and
(c.1), to have been paid to and received by the
taxpayer.
[9]
Counsel for the respondent filed several court decisions dealing
with the application of section 56.1. They show that
different approaches have been taken. One of them is Judge
Beaubier's approach in Kirchner v. Canada, [1992]
T.C.J. No. 571. In that case, the taxpayer had made
maintenance payments directly to his daughter, a university
student. After quoting the opening words of
subsection 60.1(1), Judge Beaubier stated the following
at pages 2-3:
It is apparent that the opening words of subsection 60.1(1)
govern what follows in the subsection. They require that a
decree, order, judgment or written agreement must be that
described in paragraphs 60(b), (c), or (c.1). All of these
paragraphs refer to the payment in question being made to a payee
who is a person other than a child of the taxpayer.
In the instant case the Appellant wishes to deduct payments
made directly to a child of the taxpayer under the authority of
subsection 60.1(1). The introductory words of the subsection do
not give the taxpayer such a right.
[10] In none
of the decisions submitted to me was Judge Beaubier's
approach adopted, but it was not commented on disapprovingly
either. In some of the decisions, it was assumed that section
60.1 could apply in such circumstances, but a distinction was
then made between cases in which the child was in the
mother's custody and cases in which the mother no longer had
custody of the child. For example, this was the approach taken by
my colleague Judge Lamarre Proulx in Greg Guardo v.
M.N.R., 89-1660(IT)I, and by Pinard J. of the Trial
Division of the Federal Court of Canada in the same case, 99 DTC
5150.
[11] The
approach taken by Judge Beaubier in Kirchner,
supra, strikes me as correct. It seems to me that it is in
keeping with the goal being pursued by Parliament when it enacted
section 56.1 in 1974, namely to ensure that payments made to
third parties for the benefit of the spouse or the spouse's
children would be deemed to have been received by the spouse for
the purposes of paragraph 56(1)(b). That goal is
stated explicitly in the technical notes accompanying the 1982
and 1992 amendments. In David M. Sherman's
Income Tax Act, Department of Finance Technical
Notes, 6th edition (Carswell), updated to
September 1994, the following passage concerning the 1982
amendments may be found at pages 314-15:
Section 56.1 treats certain alimony and maintenance
payments made to third parties for the benefit of a taxpayer (or
children in the custody of the taxpayer) as having been received
by the taxpayer.
Similar wording is found in the technical note concerning the
June 1992 amendments:
Section 56.1 treats certain alimony and maintenance
payments made to third parties for the benefit of an individual
who is a taxpayer's spouse, former spouse, common-law
spouse or a person who is a parent of a taxpayer's child (or
for the benefit of children in the custody of such an individual)
. . . .
[12] It can be
seen from those technical notes that section 56.1 was directed at
payments made to third parties for the benefit of the spouse and
children. The purpose was not to tax in the spouse's hands
amounts that might be paid directly to the spouse's children.
If the intention had been for such payments to be covered, this
could have been clearly stated in section 56.1. In my view,
Parliament never intended section 56.1 to apply to them. As I see
it, the interpretation of section 56.1 that is most
consistent with Parliament's intention is that the section
must not be applied to amounts paid directly to children, whether
minor or adult.
[13] During
her argument, counsel for the respondent asked: [translation]
"But then what would be the point of section 56.1 if
payments made to children were excluded and only payments made to
third parties were included?" I would like to refer by way
of example to a decision in which section 56.1 was given its full
effect. It is the decision rendered by Judge Lamarre Proulx in
Perrie v. Canada, [1999] T.C.J. No. 610. There,
$1,550 a month in alimony was payable by the appellant as
follows: (1) by withholding from that $1,550 every month the
amounts needed to pay certain expenses himself, including the
mortgage payments on the matrimonial home and the property taxes;
and (2) by giving his former spouse in advance, on the first of
each month, any balance not otherwise payable of the amount of
$1,550. Judge Lamarre Proulx concluded that
subsection 60.1(1) applied in that situation.
[14] For these
reasons, Ms. Marcil's appeal is allowed with costs and the
assessments for 1991 and 1992 are referred back to the Minister
for reconsideration and reassessment on the basis that the
amounts paid to Ms. Marcil's two children must be
excluded from her income.
Signed at Ottawa, Canada, this 10th day of August 2001.
"Pierre Archambault"
J.T.C.C.
Translation certified true on this 8th day of November
2001.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
96-1998(IT)I
BETWEEN:
DIANE MARCIL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on February 7, 2000, and judgment
delivered orally
on February 10, 2000, at Montréal,
Quebec, by
the Honourable Judge Pierre Archambault
Appearances
Agent for the
Appellant:
Jean-Michel Prieur
Counsel for the
Respondent:
Suzanne Morin
JUDGMENT
The
appeals from the assessments made under the Income Tax Act
for the 1991 and 1992 taxation years are allowed, with costs, and
the assessments are referred back to the Minister of National
Revenue for reconsideration and reassessment on the basis that
the amounts paid to Ms. Marcil's two children must be
excluded from her income.
Signed at Ottawa, Canada, this 16th day of February 2000.
J.T.C.C.
Translation certified true
on this 8th day of November 2001.
Erich Klein, Revisor
Email this Content