Date: 20000627
Docket: 98-339-IT-G
BETWEEN:
RENÉE BADEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Garon, C.J.T.C.C.
[1]
These are appeals from assessments by the Minister of National
Revenue for the 1993 and 1994 taxation years. By those
assessments, the Minister of National Revenue added to the
appellant's income, in respect of alimony, the amounts of
$33,000 for the 1993 taxation year and $13,300 for the 1994
taxation year, according to the notice of confirmation of
December 9, 1997. In making these assessments, the Minister
of National Revenue relied on paragraph 56(1)(b) of
the Income Tax Act (the "Act").
[2]
The parties agreed at the hearing of these appeals that the
amounts in issue were $16,200 for 1993 and $5,000 for 1994.
Further explanations respecting the calculation of the amounts in
question are provided below.
[3] A
[TRANSLATION] "Partial Agreement on the Facts" filed at
the start of the hearing reads as follows:
[TRANSLATION]
1-
On October 30, 1992, the Superior Court rendered in divorce
proceedings an interim judgment on the application for interim
relief, as appears from the copy of the judgment filed in support
hereof as Exhibit P-1;
2-
The appellant was sole owner of the immovable located at 303
Howard Street in Sherbrooke;
3-
At the time of the divorce proceedings, there was a $95,000 first
mortgage on the residence at 303 Howard Street in Sherbrooke;
4-
At the time of the divorce proceedings, there was also an $80,000
second mortgage on the residence at 303 Howard Street in
Sherbrooke; that mortgage had been granted by the appellant as
security for a loan taken out by her former spouse which she had
personally guaranteed, as appears from a copy of the notarial
deed filed in support hereof as Exhibit P-2;
5-
The costs related to the family home such as mortgage payments,
taxes, insurance, heating and electricity totalled at least
$1,500 but not more than $1,800 a month; the amount of the
mortgage was $1,048 a month, the heating and electricity at least
$320 a month, taxes $234 a month and insurance $92 a month; these
amounts were received by pre-authorized monthly payment
directly from the appellant's bank account no. 208104 at
the Caisse d'Économie des Cantons;
6-
The amounts paid to the appellant during the 1993 taxation year
in accordance with the judgment (Exhibit P-1) totalled
$33,000; during the 1993 taxation year, a monthly amount of
$2,750 was paid to the appellant by her former spouse directly
into her bank account no. 208104 at the Caisse
d'Économie des Cantons;
7-
On September 14, 1993, the Superior Court rendered judgment
on an application by the appellant's former spouse, as
appears from the judgment filed in support hereof as
Exhibit P-3;
8-
On December 15, 1993, the appellant and her former spouse
signed an agreement on corollary relief;
9-
On January 13, 1994, the Superior Court received, approved
and gave force and effect to the said agreement, as appears from
the judgment and accompanying documents filed together as
Exhibit P-4;
10-
In a judgment dated August 2, 1994, the Superior Court ruled
in particular that the alimony and seizures were suspended, as
appears from the judgment filed in support hereof as
Exhibit P-5;
11-
On October 27, 1994, the Superior Court ordered the
appellant's former spouse to pay the appellant the sum of
$250 a month per child as of May 1, 1994, as appears from
the judgment filed in support hereof as
Exhibit P-6;
12-
The appellant in fact received the sum of $13,300 from her former
spouse during the 1994 taxation year;
13-
On February 24, 1995, the Superior Court approved the
parties' agreement signed on February 16, 1995 and
ordered them to comply with it, as appears from the judgment
filed in support hereof as Exhibit P-7;
14-
The appellant filed income tax returns for the 1993 and 1994
taxation years, as appears from the copies of the returns filed
together as Exhibit P-8;
15-
On or around November 29, 1996, the appellant filed with the
Minister of National Revenue an amended income tax return for
1993 in which she characterized the sum of $16,800 as income from
alimony or other allowance payable on a periodic basis, as
appears from the copy of the return filed in support hereof as
Exhibit P-9;
16-
On or around November 29, 1996, the appellant filed with the
Minister of National Revenue an amended income tax return for the
1994 taxation year in which she characterized the sum of $8,300
as income from alimony or other allowance payable on a periodic
basis, as appears from the copy of the return filed in support
hereof as Exhibit P-10;
17-
By notices of reassessment dated April 24, 1997, the
Minister of National Revenue added to the appellant's income
the amounts of $33,000 and $13,300 as income from alimony or
other allowance payable on a periodic basis for her 1993 and 1994
taxation years respectively, as appears from the copies of the
notices of reassessment filed in support hereof as
Exhibit P-11;
18-
On or around July 3, 1997, the appellant filed a notice of
objection in respect of the reassessments referred to in the
previous paragraph, as appears from the copy of the notice of
objection filed in support hereof as Exhibit P-12;
19-
By notice of confirmation dated December 9, 1997, the
Minister of National Revenue confirmed the reassessments, as
appears from the copy of the notice of confirmation filed in
support hereof as Exhibit P-13.
[4]
The judgment granting the divorce of the appellant and
Charles L. Mitnyan is dated January 13, 1994 and
became absolute 31 days later.
[5]
The Court had the benefit of hearing the testimony of the
appellant, who was the only witness called at the hearing. Her
testimony provided some clarification as to her financial
circumstances and those of her former spouse during both the
period in issue and the years before and after that period which
were close to it.
[6] A
book of 13 exhibits as well as a divorce judgment dated
January 13, 1994 and a mortgage security document dated
November 21, 1990 and signed by the appellant in favour of
the Hongkong Bank of Canada were filed in evidence.
[7]
The documentary evidence reveals that in [TRANSLATION]
"amended returns" dated November 29, 1996, the
appellant added to her income, as alimony, the amounts of $16,800
for the 1993 taxation year and $8,300 for the 1994 taxation year.
In including the amounts of $33,000 for 1993 and $13,300 for 1994
in the appellant's income as alimony, the Minister of
National Revenue in fact added to her income in that respect only
the amounts of $16,200 for the 1993 taxation year and $5,000 for
the 1994 taxation year. These amounts represent the expenses
related to the family home described in a judgment of the
Superior Court of Quebec dated October 30, 1992, which is
discussed more fully below.
Analysis
[8]
The point for determination is thus whether the amounts of
$16,200 and $5,000 representing certain expenses relating to the
family home, which were received by the appellant during the 1993
and 1994 taxation years as alimony must be included in her income
for the taxation years in question.
[9]
As the payments totalling $16,200 were made to the appellant by
her former spouse during the 1993 taxation year under a judgment
dated October 30, 1992, paragraph 56(1)(b) of
the Act, as it read prior to the amendment made by
subsection 17(1), Schedule VIII, Chapter 7 of the
Statutes of Canada, 1994, applies. The amendment applies
solely to amounts received under an order or judgment made after
1992.
[10]
Paragraph 56(1)(b) of the Act applicable to
the amounts received by the appellant in 1993 read as
follows:
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 remainder of the year.
[11] The
parties admitted that all the conditions set by
paragraph 56(1)(b) were met in the instant case,
except the condition that the amounts be received as an
allowance.
[12] To
determine whether the amounts were an allowance, the Court must
consider subsection 56(12), which reads as follows:
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.
[13] The point
at issue with respect to the 1993 taxation year may therefore be
narrowly stated as follows: Did the appellant have discretion as
to the use of the amount of $16,200, representing expenses
relating to the family home, which was paid to her by her former
spouse in 1993?
[14] To answer
this question, the part of the judgment of October 30, 1992
requiring the former spouse to pay the appellant the amounts in
question must be analyzed. The text of the operative part of that
judgment reads as follows:
[TRANSLATION]
ORDERS the respondent to pay the applicant, for her children,
monthly alimony of $2,750, with the applicant being required to
pay the household expenses, including mortgage, heating, tax,
electricity and other payments; this amount shall be deposited on
the first of each month to the applicant's bank account,
no. 208104, at the Caisse d'Économie des
Cantons.
[15] The scope
of subsection 56(12) of the Act has been considered
by the courts on numerous occasions. In this regard, I would like
to refer to the decision by Judge Dussault of this Court in
Hamer v. Canada, [1997] T.C.J. No. 791, confirmed by
the Federal Court of Appeal, which adopted the trial judge's
reasons. In Hamer, the appellants disputed the inclusion
in their income of amounts received as alimony solely for the
benefit or maintenance of their children. In view of the
restriction requiring that the amounts received had to be used
solely for the children's benefit, the appellants contended
that these amounts did not belong to them and that they had no
discretion as to their use within the meaning of
subsection 56(12) of the Act.
[16] The
following comments by Judge Dussault in that judgment are
particularly apposite:
16
Section 56(1)(b) relates specifically to an amount received by a
spouse or former spouse "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" provided the other conditions
stated in the paragraph are met. Paragraphs (c) and (c.1) cover
similar payments in different circumstances. Nothing in these
provisions requires that the spouse or former spouse receiving
amounts for the benefit or maintenance of children in his or her
custody be the owner or be himself or herself the creditor of the
alimony. The Civil Code of Quebec provides that proceedings for
the support of a minor child may be instituted by the holder of
parental authority and that the alimony or allowance may be
ordered payable to the person who has custody of the child. The
Divorce Act also provides that the spouse or former spouse may
apply to a tribunal for a support order for dependent children.
Certainly, an alimony or an allowance paid pursuant to a judgment
or order for the maintenance of children only gives a spouse or
former spouse receiving it authority to use it in his or her
discretion while achieving its ultimate purpose, unless the
judgment or order makes some other provision by indicating or
specifying the purpose to which it must be allocated or how it
should be used for the children's benefit. The usual and
consistent interpretation of s. 56(12) in its context leads to
the conclusion that the purpose of adopting it was simply to
exclude from the word "allowance" for the purposes of
s. 56(1)(b), (c) and (c.1) and corresponding paragraphs of s. 60
any amount the use of which was specified in this way, with the
obvious consequence of substituting the payer's wishes for
the free will of the recipient as to the manner in which the
money should be used. I do not think that s. 56(12) can be given
a wider meaning, the effect of which would be to neutralize the
application of s. 56(1)(b), (c) and (c.1) and of the
corresponding paragraphs of s. 60 simply because an alimony or
allowance is paid for the maintenance of children only.
[The references in brackets to certain footnotes appearing in
this judgment have been omitted.]
[17] In light
of this judgment, it seems undeniable that amounts received by a
taxpayer which meet the conditions set by
paragraph 56(1)(b) constitute allowances within the
meaning of subsection 56(12) if those amounts fall within
the framework of the general purpose stated in
paragraph 56(1)(b) of the Act and if no
clarification is made or restriction specified as to their use.
In such a case, the taxpayer is considered for the purposes of
subsection 56(12) as having discretion as to the use of
those amounts.
[18]
Considering the paragraph cited above, in paragraph 14 of
these reasons, taken from the judgment of October 30, 1992,
and having regard to the above observations, it may be seen that
a relationship is established in that paragraph between the
obligation imposed on the former spouse to pay the appellant
monthly alimony of $2,750 for her children and the
appellant's obligation to pay the expenses relating to the
family home that are described in that paragraph. In view of this
obligation imposed on the appellant to pay the said expenses, I
find that the appellant did not have discretion as to the use of
the portion of the monthly payments of $2,750 made pursuant to
the judgment of October 30, 1992, which went to pay those
expenses. Payment of the expenses relating to the family home was
the only purely financial obligation imposed on the appellant by
the judgment. The wording of the aforementioned paragraph from
the judgment suggests that the appellant's obligation to pay
the expenses in question is to a certain degree the counterpart
of the former spouse's obligation to make the monthly
payments of $2,750. It is particularly significant that the
expense amounts relating to the family residence paid by the
appellant in 1993 were taken by direct debit from the
appellant's account into which the amounts were paid by her
former spouse, as appears from paragraphs 5 and 6 of the
"Partial Agreement on the Facts".
[19] As to the
amount of $5,000 received during the 1994 taxation year,
reference must be made to the divorce judgment of
January 13, 1994 by the Superior Court of Quebec.
Clause 2 at page 3 of the [TRANSLATION] "Agreement on
Corollary Relief" dated December 15, 1993, confirmed by
that judgment, reads as follows:
[TRANSLATION]
The respondent shall pay the applicant for the children
Manuel, Erika and Coralie monthly alimony of $2,400.00 payable on
the first of each month, starting January 1, 1994, into the
applicant's bank account no. 208104 at the Caisse
d'Économie des Cantons.
[20] That
judgment applies solely to the payments made for the months of
January to April inclusive of the 1994 taxation year in view of
what is stated in the following paragraph of the Superior Court
of Quebec's judgment of October 27, 1994:
[TRANSLATION]
THE COURT ISSUES THE FOLLOWING INTERIM ORDER, which DIRECTS
the respondent and ORDERS HIM to pay the applicant, for the
children, alimony of $250.00 a month per child, for as long as
they live with her, as of May 1, 1994.
[21] As
explained above, the appellant had full discretion as to the use
of the amounts payable to her in respect of the first four months
of 1994 in the context of the purpose indicated in
paragraph 56(1)(b) of the Act. No restriction
was imposed on the appellant requiring her to allocate the
monthly payments to any particular expense or to a specific class
of expenses. These payments thus constituted an allowance within
the meaning of subsection 56(12) of the Act and must
therefore be included in the appellant's income for the 1994
taxation year.
[22] There was
no dispute between the parties with respect to the payments that
had to be made to the appellant by the former spouse under the
judgment of October 27, 1994 for the part of 1994 commencing
on May 1 and ending on December 31.
[23] For these
reasons, the appeal from the assessment for the 1993 taxation
year is allowed and the assessment is referred back to the
Minister of National Revenue for reconsideration and reassessment
on the basis that the amount of $16,200 (which is part of a total
of $33,000) received by the appellant during the 1993 taxation
year should not be included in her income.
[24]
The appeal from the assessment for the 1994 taxation year is
dismissed.
[25] The
appellant is entitled to her costs.
Signed at Ottawa, Canada, this 27th day of June 2000.
"Alban Garon"
C.J.T.C.C.
Translation certified true on this 28th day of September
2001.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
20000627
98-339(IT)G
BETWEEN:
RENÉE BADEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on August 18, 1999, at
Drummondville, Quebec, by
the Honourable Chief Judge Alban Garon
Appearances
Counsel for the
Appellant:
Richard Généreux
Counsel for the
Respondent:
Anne-Marie Boutin
JUDGMENT
The
appeal from the assessment made under the Income Tax Act
for the 1993 taxation year is allowed and the assessment is
referred back to the Minister of National Revenue for
reconsideration and reassessment on the basis that the amount of
$16,200 (which is part of a total of $33,000) received by the
appellant during the 1993 taxation year should not be included in
her income.
The
appeal from the assessment made under the Income Tax Act
for the 1994 taxation year is dismissed.
The
appellant is entitled to her costs.
Signed at Ottawa, Canada, this 27th day of June 2000.
C.J.T.C.C.
Translation certified true
on this 28th day of September 2001.
Erich Klein, Revisor
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