[OFFICIAL ENGLISH TRANSLATION]
Date: 20000315
Docket: 98-949(IT)I
BETWEEN:
LUC P. LANCE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre, J.T.C.C.
[1] These are appeals under the
informal procedure from assessments made by the Minister of
National Revenue ("Minister") under the Income Tax
Act ("Act") for the 1995 and 1996 taxation
years. In computing his income for each of those years, the
appellant deducted amounts of $5,500 and of $14,389.44
respectively, as alimony paid.
[2] The Minister allowed a deduction
for $4,800 in alimony for each of the years at issue, at the same
time refusing deductions in the amount of $700 for 1995 and of
$9,589.44 for 1996.
[3] In making the assessments, the
Minister relied on the following facts stated in paragraph 6 of
the Reply to the Notice of Appeal:
[TRANSLATION]
(a) in the judgment
of divorce dated October 14, 1994, the appellant was subject to a
number of requirements, including the following:
(i) to pay
Loretta Anderson (hereinafter the "former spouse")
alimentary allowance of $400 per month for the children of the
marriage;
(ii) to pay the
mortgage, property tax and house insurance for the family home,
an amount of approximately $799.12 per month;
(iii) in the event the
appellant were to fail to pay the mortgage, property tax and
house insurance, to pay the former spouse $799.12 per month, the
amount she would have to pay for those same expenses;
(b) the disallowed
deduction for the alimentary allowance, that is, the amounts of
$700 for 1995 and of $9,589.44 for 1996, covers the cost of the
mortgage, property tax and house insurance for the family home
where the former spouse and the children reside;
(c) the former
spouse has no discretion with respect to the use of the amounts
paid by the appellant for the mortgage, property tax and house
insurance;
(d) the amounts paid
by the appellant for the mortgage, property tax and house
insurance were not paid directly to the former spouse;
(e) in the judgment
of divorce between the appellant and the former spouse, there is
no indication that subsections 56.1(2) and 60.1(2) of the
Income Tax Act (the "Act") apply to the amounts
owing for the mortgage, property tax and house insurance or that
those amounts are deemed to be paid to the former spouse and
received by her as periodic payments.
[4] With the agreement of counsel for
the respondent, counsel for the appellant adduced in evidence the
judgment of divorce giving effect to the divorce agreement
entered into by the appellant and his former spouse. The
evidence in question was filed as Exhibit A-1.
[5] The terms of that agreement set
out in the judgment of divorce include the following:
JUDGMENT OF DIVORCE
. . .
THE COURT RENDERS a judgment of divorce between the parties whose
marriage was solemnized on the 1st of June 1984 at
Elliot Lake, Province of Ontario, to take effect on the
thirty-first day after the date of the present judgment;
RATIFIES the agreement entered into by the parties and filed into
the Court record, dated September 15th 1994, which
document forms integral part of this judgment, including all
renunciations, DECLARES it to be executory, ENJOINS the parties
to abide therewith and, more particularly:
. . .
ORDERS Defendant to pay to Applicant, for the said children, an
alimentary allowance of $400.00 per month, payable in advance the
first day of every month;
The father will pay, as supplementary child support, the mortgage
payment and the taxes of the property described in paragraphe
(sic) 14 of the agreement, and the house insurance; that
represents currently an amount of approximately $799.12 per
month;
In default by the father to undertake either one of the payments
mentioned in the preceeding paragraph, he will pay to the mother,
as supplementary support for the children the sum of $799.12 per
month, such sum being used by the mother for the payment of the
expenses mentioned in the proceeding (sic) paragraph;
. . .
GIVES to the Applicant a formal right of use and habitation of
the principal family residence.
[6] The only point at issue consists
in determining whether the amounts paid by the appellant to cover
the mortgage, property tax and house insurance on the family
home, which are assessed at $799.12 per month in the agreement
and the judgment of divorce, are deductible in the computation of
the appellant's income for the years 1995 and 1996.
[7] The respondent was of the view
that the appellant could not deduct those amounts since they do
not represent alimony or any other allowance within the meaning
of paragraph 60(b) and subsection 56(12) of the
Act. She further argued that those amounts are not deemed
to have been paid by the appellant to his former spouse as an
allowance payable on a periodic basis within the meaning of
subsection 60.1(2) since the judgment of divorce makes no mention
of this.
[8] Counsel for the appellant did not
seem to be contesting the fact that this is not alimony within
the meaning of the Act since the appellant and his former
spouse were no longer married during the years at issue (see
Langstaff v. The Queen, [1996] TCJ No. 1266 (Q.L.)). He
argued that the amounts at issue are deductible simply on the
basis of subsection 60.1(1) and paragraph 60(b)
of the Act. In his view, the wording of those two
provisions overrules the application of subsections 56(12)
and 60.1(2) of the Act. He further argued that those
amounts constitute an allowance payable on a periodic basis
within the meaning of subsections 56(12) and 60.1(2) since
the terms of the judgment of divorce refer to amounts paid "as
supplementary child support". In his view, there is no need to
refer specifically to subsections 56.1(2) and 60.1(2) for
those amounts to be deductible so long as the terms of the
judgment are sufficiently clear to establish that this is an
allowance payable on a periodic basis.
Analysis
[9] During the years in issue, the
relevant sections of the Act read as follows:
SECTION 56: Amounts to be included in income for
year.
(56(12))
(12)
Definition of "allowance". Subject to subsections
56.1(2) and 60.1(2), for the purposes of paragraphs
(1)(b), (c) and (c.1) (in this subsection
referred to as the "former paragraphs") and
60(b), (c) and (c.1) (in this subsection
referred to as the "latter paragraphs"),
"allowance" does not include any amount that is
received by a person, referred to in the former paragraphs as
"the taxpayer" and in the latter paragraphs as
"the recipient", unless that person has discretion as
to the use of the amount.
SECTION 60: Other deductions.
There may be
deducted in computing a taxpayer's income for a taxation year
such of the following amounts as are applicable:
(60(b))
(b) Alimony payments - an amount paid by the
taxpayer in the year as alimony or other allowance payable on a
periodic basis for the maintenance of the recipient, children of
the recipient or both the recipient and the children, if the
taxpayer, because of the breakdown of the taxpayer's
marriage, was living separate and apart from the spouse or former
spouse to whom the taxpayer was required to make the payment at
the time the payment was made and throughout the remainder of the
year and the amount was paid under a decree, order or judgment of
a competent tribunal or under a written agreement;
(60(c))
(c) Maintenance - an amount paid by the taxpayer
in the year as an allowance payable on a periodic basis for the
maintenance of the recipient, children of the recipient or both
the 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;
SECTION 60.1 : Maintenance payments.
(1)
Where a decree, order, judgment or written agreement described in
paragraph 60(b) or (c), or any variation thereof,
provides for the periodic payment of an amount by a taxpayer
(a) to a
person who is
(i) the
taxpayer's spouse or former spouse, or
(ii) where
the amount is paid under an order made by a competent tribunal in
accordance with the laws of a province, an individual of the
opposite sex who is the natural parent of a child of the
taxpayer, or
(b) for the
benefit of the person, children in the custody of the person or
both the person and those children,
the amount or any part thereof, when paid, shall be deemed for
the purposes of paragraphs 60(b) and (c) to have
been paid to and received by that person.
(60.1(2))
(2)
Agreement. For the purposes of paragraphs 60(b) and
(c), the amount determined by the formula
A - B
where
A is the total of
all amounts each of which is an amount (other than an amount to
which paragraph 60(b) or (c) otherwise applies)
paid by a taxpayer in a taxation year, under a decree, order or
judgment of a competent tribunal or under a written agreement, in
respect of an expense (other than an expenditure in respect of a
self-contained domestic establishment in which the taxpayer
resides or an expenditure for the acquisition of tangible
property that is not an expenditure on account of a medical or
education expense or in respect of the acquisition, improvement
or maintenance of a self-contained domestic establishment in
which the person described in paragraph (a) or (b)
resides) incurred in the year or the preceding taxation year for
maintenance of a person who is
(a) the taxpayer's spouse or former spouse, or
(b) where the amount is paid under an order made by a
competent tribunal in accordance with the laws of a province, an
individual of the opposite sex who is the natural parent of a
child of the taxpayer,
or for the maintenance of children in the person's custody
or both the person and those children if, at the time the expense
was incurred and throughout the remainder of the year, the
taxpayer was living separate and apart form that person, and
B is the amount, if
any, by which
(a) the total of all amounts each of which is an amount
included in the total determined for A in respect of the
acquisition or improvement of a self-contained domestic
establishment in which that person resides, including any payment
of principal or interest in respect of a loan made or
indebtedness incurred to finance, in any manner whatever, such
acquisition or improvement
exceeds
(b) the total of all amounts each of which is an amount
equal to 1/5 of the original principal amount of a loan or
indebtedness described in paragraph (a),
shall, where
the decree, order, judgment or written agreement, as the case may
be, provides that this subsection and subsection 56.1(2) shall
apply to any payment made thereunder, be deemed to be an amount
paid by the taxpayer and received by that person as an allowance
payable on a periodic basis.
[10] Paragraph 60(b) provides for the
deduction of amounts paid as alimony to the former spouse. The
instant case involves amounts paid by the appellant to third
parties. Under subsection 60.1(1), if the judgment of
divorce provides for payment on a periodic basis of an amount by
a taxpayer for the benefit of his former spouse or of children in
her custody, the amount shall be deemed for the purposes of
paragraphs 60(b) and (c) to have been paid to
and received by the former spouse.
[11] According to counsel for the appellant, such
is clearly the case here since the judgment of divorce requires
that the appellant pay the mortgage, property tax and house
insurance in specific periodic amounts for the benefit of his
former spouse and his children who have use of the family
home.
[12] According to counsel for the appellant,
subsection 60.1(1) makes no reference to
subsection 56(12) and it is therefore not necessary to prove
that the former spouse could use the amounts in question at her
discretion for them to qualify as an allowance. He held that it
was not logical to apply subsections 60.1(1) and 56(12)
concurrently since subsection 60.1(1) deals specifically with
payments to third parties for the benefit of the former spouse or
children in her custody and that the payments could obviously not
be used at the former spouse's discretion. According to counsel
for the appellant, given that subsection 60.1(1) applies, it
is no longer necessary to meet the conditions of
subsection 56(12). He relied on the decision of the Federal
Court Trial Division in The Queen v. Bryce, [1981]
1 F.C. 587, reversed by the Federal Court of Appeal but
restored, according to him, by the Supreme Court of Canada in a
judgment given on consent. Counsel for the appellant also relied
on the rulings of this court in Crewe v. The Queen,
[1992] TCJ No. 547 (Q.L.) and in Langstaff, cited
earlier.
[13] The Federal Court of Appeal had the
opportunity to examine that particular point in The
Queen v. Armstrong, [1996] FCJ No. 599 (Q.L.). Stone J.A.
writes as follows at pages 7 to 9:
[13] I agree that the construction of subsection 60.1(1) is
not without some difficulty. At the same time, with respect, I do
not see how the decision of the Trial Division in Bryce can be
described as being beyond "attack", as the Tax Court
Judge suggests, when it was reversed by this Court on appeal.
True, the Supreme Court of Canada upon a motion in chambers in
turn reversed this Court's judgment but as its judgment was
given on consent it has no precedential value. A consent judgment
represents an agreement of the parties and although it is entered
upon the record with the approval of a court and is therefore
binding as between the parties it does not create a precedent by
which an inferior court is bound. [See Note 3 below] It seems
obvious, moreover, that no argument was addressed to the Supreme
Court in Bryce on the issue which was disposed of by this
Court.
_______________
Note 3: See Prince et al. v. Frost-Johnson Lumber Co. et al.,
250 S.W. 785 (Tx. Ct. of Civ. App.), at p. 789. See also Belcher
et al. v. Cobb et al., 86 S.E. 600 (S.C.N.C.), at p. 602; Cason
v. Shute et al., 189 S.E. 495 (S.C.N.C.), at pp. 495-496.
[14] Subsection 60.1(1) does not by express language
incorporate the definition of "allowance" in subsection
56(12). It does, however, restrict its own application to the
periodic payment of an amount by a taxpayer provided for in a
"decree, order, judgment or written agreement described in
paragraphs 60(b), (c) or (c.1), or any
variation thereof", made after May 6, 1974. In my view,
the relevant descriptions are found in the following language of
the respective paragraphs:
60.(b)....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....
60(c)...an order of a competent tribunal, as an allowance
payable on a periodic basis for the maintenance of the recipient
thereof, children of the recipient, or both the recipient and
children of the recipient...
60(c.1)...an order made by a competent tribunal in accordance
with the laws of a province, as an allowance payable on a
periodic basis for the maintenance of the recipient thereof,
children of the recipient, or both the recipient and the children
of the recipient... (emphasis added)
It seems to me that one must read the qualifying words "as
alimony or other allowance" or "as an allowance"
in their particular context within those paragraphs for the full
descriptions of "decree, order, judgment or written
agreement" referred to in subsection 60.1(1). Otherwise any
decree, order, judgment or written agreement would theoretically
fall within the descriptions.
[15] It is to be observed that this descriptive language is
absent from subsection 60.1(1). Furthermore, the definition of
"allowance" contained in subsection 56(12) was adopted,
inter alia, expressly "for the purposes of
paragraph...60(b), (c) and (c.1)".
Subsection 60.1(1) does not itself provide for the deduction of
an amount paid and received. Instead, it enlarges the right of
deduction made available under paragraphs 60(b),
(c) or (c.1) by deeming "for the purposes of
paragraphs 60(b), (c) and (c.1)" an
amount "to have been paid and received by that person".
In my view, the subsection 56(12) definition of
"allowance" is to be read together with subsection
60.1(1) of the Act and the latter subsection construed
accordingly. Accordingly, as the former spouse had no discretion
as to the use of the moneys they cannot be deducted by the
respondent from his income for the taxation years in question.
[See Note 4 below]
__________________
Note 4: In The Queen v. Arsenault, [1996]
F.C.J. No. 202, a majority of this Court concluded that
payments in the form of cheques made payable to a third party but
handed to the former spouse for delivery to the third party in
satisfaction of a maintenance which was provided for in a court
order and separation agreement, were deductible under paragraph
60(b) of the Act, as on the facts the former spouse
"retained a discretion as to how the money was
paid".
[16] The Tax Court Judge expressed the view that such a
construction would render the subsection non-existent because a
taxpayer who makes periodic payments "for the benefit"
of a former spouse or children or for both, because such payments
are earmarked for particular purposes, can never leave to the
spouse a "discretion as to the use" of the moneys. If
this be a difficulty it results from the clear language of the
statute and, therefore, only Parliament could resolve it. [See
Note 5 below]
_________________
Note 5: See R. v. McIntosh, [1995]
1 S.C.R. 686, per Lamer C.J. at p. 704:
I would adopt the following proposition: where, by the use of
clear and unequivocal language capable of only one meaning,
anything is enacted by the legislature, it must be enforced
however harsh or absurd or contrary to common sense the result
may be (Maxwell on the Interpretation of Statutes, supra, at p.
29.). The fact that a provision gives rise to absurd results is
not, in my opinion, sufficient to declare it ambiguous and then
embark upon a broad-ranging interpretive analysis.
See also Wilbur-Ellis Company of Canada Limited v. Deputy
M.N.R., Customs and Excise (1995),
129 D.L.R. (4th) 579 (F.C.A.), [1995]
F.C.J. No. 1435.
[17] Tax relief is not altogether unavailable under the Act
for a taxpayer in the position of the respondent who makes a
payment to a third party on behalf of a former spouse or children
or both. Provided its requirements are satisfied, subsection
60.1(2) deems "for the purposes of paragraph 60(b),
(c) and (c.1)" that an amount so paid is an
amount paid by that taxpayer and received by a person on whose
behalf it is paid to be "an allowance payable on a periodic
basis". It was apparently the existence of this newly
adopted subsection which lead the Supreme Court of Canada to
state in Gagnon, supra, at page 276:
Before concluding, it should be noted that after this appeal
was heard by this Court the Income Tax Act was amended by 1984
(Can.), c. 45, s. 20. As a result of these amendments, amounts
like the ones at issue in the case at bar are, on certain
conditions and up to certain maximum figures, deemed to be paid
and received as allowances payable on a periodic basis.
[14] Accordingly, the only way for payments made
directly to third parties to be deductible is to meet the
requirements of subsection 60.1(2). Moreover, Stone J.A.
clearly indicated that subsection 60.1(2) cannot be invoked
to allow the deduction of amounts thus paid when the decree,
order, judgment or written agreement, as the case may be, does
not provide that subsections 60.1(2) and 56.1(2) apply
to any payment under that document. Such an interpretation is
justified by one of the objects of that subsection, that of
confirming that both parties know that there are tax consequences
to such a decree, order, judgment or agreement (see Mambo v.
The Queen, [1995] TCJ No. 931 (Q.L.)).
[15] In the instant case, no reference is made in
the judgment to subsections 60.1(2) and 56.1(2) of the Act
or to the tax treatment of the amounts to be paid by the
appellant, as was the case in The Queen v. Larsson,
[1997] FCJ No. 1044; and in Pelchat v. The Queen, 97
DTC 945 (TCC), cited by counsel for the appellant. The appellant
therefore cannot rely on subsection 60.1(2) to argue that the
amounts paid to third parties are deductible.
[16] Moreover, the mortgage, property tax and
house insurance payments are payable over and above the $400
monthly alimony the appellant was required to pay his former
spouse. These are not amounts paid in replacement of the alimony
provided for in the judgment of divorce, as was the case in
The Queen v. Arsenault, [1996] FCJ No. 202 (Q.L.). If
the appellant did not default in making those payments, the
former spouse was not legally entitled to require that payment be
made directly to her rather than to the third parties. If he had,
she would not have had the discretion to decide how the money was
to be paid under the terms of the agreement and the judgment of
divorce. She thus had no discretion as to the use of those
payments, and therefore they cannot qualify as an allowance
within the meaning of subsection 56(12) of the Act.
[17] For these reasons, I am of the view that the
appellant was not entitled to deduct the amounts of $700 and of
$9,589.44 from his income for the 1995 and 1996 taxation years
respectively as alimony since the conditions set out in
paragraphs 60(b) and (c) and in
subsections 56(12), 60.1(1) and 60.1(2) of the Act
have not been met. The Minister's assessments are therefore
correct and the appeals are dismissed.
Signed at Ottawa, Canada, this 15th day of March 2000.
J.T.C.C.
Translation certified true
on this 24th day of October 2003.
Sophie Debbané, Revisor
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