[OFFICIAL ENGLISH TRANSLATION]
Date: 20000315
Docket: 1999-1632(IT)I
BETWEEN:
ROBERT KINGSBURY,
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 1993, 1994 and 1995
taxation years. In computing his income for each of those years,
the appellant deducted an amount of $9,188 as alimony paid to his
former spouse, Janet Charron. The Minister disallowed that
entire alimony deduction. In making the assessments, the Minister
relied on the following facts stated in paragraph 6 of the
Reply to the Notice of Appeal:
[TRANSLATION]
(b) the appellant
and his former spouse began divorce proceedings in November
1992;
(c) under an interim
judgment ("judgment") of August 31, 1993, the
Superior Court, Family Division ("Court") ordered the
appellant to pay the following amounts directly to the creditors
concerned:
(i) mortgage payments;
(ii) municipal and school taxes;
(iii) insurance on the family
residence;
(iv) any penalties and interest that may result
from late payment; and
(v) major and/or essential repairs to the
family residence, with the appellant's consent;
(d) the judgment
does not state that the amounts paid may at all times be used at
the former spouse's discretion;
(e) the amounts
payable stipulated in subparagraph 4 above do not constitute
an allowance within the meaning of subsection 56(12) of the
Income Tax Act ("Act"); and
(f) the
judgment does not expressly provide that the amounts paid
referred to above will be deductible under
subsection 60.1(2) or that the former spouse will receive
the said amounts as an allowance payable on a periodic basis
under subsection 56.1(2) of the Act.
[2] The appellant filed in evidence an
interim relief agreement respecting alimony
(Exhibit A-1) and an interim relief judgment
(Exhibit A-2), both dated August 31, 1993. The
terms of the agreement (Exhibit A-1) read as
follows:
[TRANSLATION]
Interim relief agreement
respecting alimony
Upon application by the respondent for interim relief;
Upon judgment pronounced by the Honourable Judge
Jean Dagenais awarding custody of the children (3) to the
respondent and reserving her recourse for alimony;
Upon the application being set down again for hearing to
determine alimony;
Considering the applicant's low income;
The parties agree to the following:
In lieu of alimony, the applicant shall make, directly to the
creditors concerned, the following payments in respect of the
family residence:
(a) the weekly mortgage payment;
(b) payment of municipal and school taxes and
insurance on the family home on their respective due dates;
(c) any penalty and/or interest that may result
from late payment;
(d) major and/or essential repairs, with the
applicant's consent.
The applicant shall pay any arrears that may have accumulated
as of August 31, 1993 in respect of the payments enumerated
in paragraph 1.
The respondent will be authorized to obtain from the creditors
concerned confirmation that the payments have been duly made
and/or written confirmation of any arrears.
Should there be arrears, the respondent may collect them
directly from the applicant in the same manner as any alimony in
order to be able to make any payment in default herself.
It is understood that these provisions may in no way affect
the settlement of financial interests.
[3] The interim relief judgment
(Exhibit A-2) reads as follows:
[TRANSLATION]
JUDGMENT
This is
an application for interim relief respecting alimony.
Considering the agreement filed in the Court record;
FOR THESE REASONS, THE COURT:
ORDERS
the applicant, on an interim basis, to pay, in lieu of alimony,
the following amounts in respect of the family residence, the
said amounts being payable directly to the creditors
concerned:
(a) the weekly
mortgage payment;
(b) payment of
municipal and school taxes and insurance on the family home on
their respective due dates;
(c) any penalty
and/or interest that may result from late payment;
(d) major and/or
essential repairs, with the applicant's consent.
ORDERS
the applicant to pay any arrears that may have accumulated as of
August 31, 1993 in respect of the payments enumerated
above;
FORMALIZES the agreement reached between the parties on
August 31, 1993 and orders the parties to comply
therewith;
WITHOUT
COSTS.
[4] In accordance with these two
documents the appellant paid directly to the various creditors,
on a weekly basis, a total amount of $9,188 in each of the years
1993, 1994 and 1995. The point at issue is whether those amounts
paid to the various creditors are deductible in computing the
appellant's income for each of those years. The appellant
submits that the payments were in lieu of alimony according to
the interim relief judgment. Accordingly, in his view, they
should be deductible under the Act.
Analysis
[5] During the years in issue, the
relevant sections of the Act read as follows:
SECTION 56: Amounts to be included in income for
year.
456(12)3
(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:
460(b)3
(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;
460(c)3
(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.
460.1(2)3
(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.
[6] Under subsection 60.1(1),
where the interim relief judgment provides for the periodic
payment of an amount by a taxpayer for the benefit of the
taxpayer's former spouse or children in the former
spouse's custody, that amount shall be deemed for the
purposes of paragraphs 60(b) and (c) to have
been paid to and received by the former spouse.
[7] However, in The Queen v.
Armstrong, [1996] F.C.J. No. 599 (Q.L.), the Federal
Court of Appeal held that payments made directly to third parties
can only be deductible if the requirements of
subsection 60.1(2) are met. Moreover, Stone J.A.
clearly stated in Armstrong that subsection 60.1(2)
cannot be relied on as a basis for allowing the deduction of
amounts thus paid where the 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 made
under that document. This interpretation is justified by one of
the objectives of that subsection, which is to confirm that both
parties know that such a judgment, order or agreement has tax
consequences (see Mambo v. The Queen, [1995] T.C.J.
No. 931 (Q.L.)).
[8] 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. The appellant therefore cannot rely on
subsection 60.1(2) to argue that the amounts paid to third
parties are deductible.
[9] Furthermore, contrary to what I
emphasized at the hearing, I do not believe that this situation
is similar to that in The Queen v. Arsenault, [1996]
F.C.J. No. 202 (Q.L.). In that case, the majority in the
Federal Court of Appeal held that payments in the form of cheques
made out to a third party but handed over to the former spouse to
be given to the third party in payment of alimony provided for in
an order and a separation agreement could be deducted under
paragraph 60(b) of the Act. The Federal Court
of Appeal so held because, on the facts, the former spouse had
retained the discretionary power to decide how the sum of money
was to be paid. Indeed, the separation agreement provided that
the husband was to pay his spouse, from whom he was separated,
alimony of $400 a month and a maintenance allowance of $100 a
month for each of the three children. Instead of paying his
spouse directly, the husband made out the rent cheques to the
landlord and handed them over to his spouse. These amounts thus
replaced the alimony provided for in the separation agreement.
However, it was clear that, rather than accept the cheques, the
spouse could have insisted that the payments be made to her
directly. Under the separation agreement, she was legally
entitled to require that payment be made to her rather than to
the landlord. She thus had discretion over the payments.
[10] The instant case differs from
Arsenault since, under the agreement and judgment, the
appellant was required to pay the creditors concerned directly.
Unlike the spouse in Arsenault, the appellant's former
spouse could not legally require that the payments be made
directly to her rather than to third parties. Moreover, if the
appellant was in default, his former spouse could claim the
appropriate amounts from him so that she herself could make any
payment with respect to which the appellant had defaulted. Thus
she could not use these amounts for other purposes. Although the
judgment states that these amounts payable by the appellant to
third parties are in lieu of alimony, the former spouse
nevertheless had no discretion over their use, as a consequence
of which they cannot be characterized as an allowance within the
meaning of subsection 56(12) of the Act.
[11] For these reasons, I can only conclude
that the appellant could not deduct an amount of $9,188 as
alimony from his income for each of the 1993, 1994 and 1995
taxation years since the conditions set out in
paragraphs 60(b) and (c) and
subsections 56(12), 60.1(1) and 60.1(2) of the Act
were not met.
[12] 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 28th day of February 2001.
Erich Klein, Revisor
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