Liliane Blais and André Poliquin v. Minister of National Revenue, [1990] 2 CTC 2005

Garon, T.CJ.:—The appeals by these two taxpayers were heard on common evidence. Subject to what is said in the final part of these reasons with respect to the amounts of support payments in issue for 1983, the facts were not in dispute.

In the appeal of Liliane Blais and the Minister of National Revenue, the appellant appealed from an income tax assessment for the 1983 taxation year in which the respondent added to the appellant's reported income an amount that the appellant considered her to have received as alimony from the appellant André Poliquin.

In the case of the appeals of André Poliquin and the Minister of National Revenue, dealing with the respondent's 1983 and 1984 income tax assessments, the appellant Poliquin disputes the respondent's refusal of the deduction of amounts that he owed to the appellant Blais for alimony, which were deducted from a debt that she owed to the appellant Poliquin.

During 1983 and 1984 the appellants, who were married on July 4, 1959, were not living together.

On September 22, 1981, the Superior Court ordered the parties to comply with an agreement entitled [Translation] "Consent as to interim relief", signed by the parties on that date, providing specifically that the respondent (André Poliquin) “shall pay to the applicant (Liliane Blais) for her minor daughter and her son Roger who has attained majority . . . an alimentary allowance of $67.50 per week payable to the applicant each Friday at the applicant's home". (The words in parentheses are added). By the same agreement, the appellant Blais acknowledged that she owed the amount of $20,000 to the appellant Poliquin. This amount represented the appellant Poliquin’s share in the assets relating to the family home. The evidence also showed that the appellant Poliquin did not pay the weekly allowance in cash, or by cheque or otherwise. By a judgment dated September 20, 1984, the Superior Court endorsed an agreement in which the appellant Blais was designated as applicant and the appellant Poliquin was described as respondent, in the form of a consent to judgment reading in part as follows:

[Translation]

4. With respect to the amount of $20,000 which the applicant acknowledged that she owes to the respondent in paragraph 6 of the judgment of September 22, 1981, the parties agree that this amount shall be repaid in the following manner:

(a) The respondent shall retain the arrears of alimentary allowance accumulated from March 4, 1983 to October 4, 1984, which amounts to $4,927.50, which shall be deducted from the sum of $20,000 owing to the respondent, leaving a balance of $15,072.50;

($67.50 x 73 wks: $4,927.50)

($20,000 - $4,927.50: balance $15,072.50);

(b) The balance of $15,072.50 shall be paid in the following manner: the respondent shall not pay to the applicant the alimentary allowance of $67.50 per week provided for the support of Louise, the daughter of the parties, and the money withheld shall be deducted from the balance owing by the applicant, until Louise has attained full independence, without interest.

Argument of the Parties

In light of these facts, the appellant Blais argued that she should not be taxed on moneys that she did not receive. She further added the following in her notice of appeal:

[Translation]

. . . It would truly be illogical because the $20,000.00 referred to in paragraph 4 of the Consent to Judgment is not a debt, but rather half of the equity in my house which I agreed to give him. How could I be required to pay tax on a house that belongs to me, that I have laboured for 14 years to be able to pay for with money that was already taxed. . . .

For his part, the appellant Poliquin argued that he was entitled to deduct the amounts of alimentary allowance in both years in question. He explained his position as follows in a document attached to his notice of appeal to this Court entitled "Statement of facts and reasons":

[Translation]

6. Rather than write a cheque to the order of Liliane Blais for alimony of $67.50 per week, which she would endorse and return to me in order to repay to me the amount of $20,000 which is owing to me, I did not write a cheque but applied this amount against the balance owing.

The respondent argued in respect of the appeal by the appellant Blais that she had received payment by way of compensation for a certain amount as alimony during the 1983 taxation year. Further, in the appeal by the appellant Poliquin, the respondent disallowed the deduction of certain amounts for the 1983 and 1984 taxation years on the ground that the appellant Poliquin did not make any payment during those two years as alimony to the appellant Blais.

Analysis

I shall deal first with the question of the deduction of the amount that the appellant Poliquin should have paid as alimentary allowance to the appellant Blais, claimed by him as alimony in calculating his income for 1983, but which was, according to the appellant Poliquin, applied to reduce a claim that he had against his ex-wife.

First, paragraph 60(b) specifically requires that the amount for which the deduction is claimed must be "paid" by the taxpayer in the year.

In the present case, there is no doubt that no amount was paid by the appellant Poliquin to the appellant Blais during 1983, at least after March 3, 1983. The fact that this alimentary allowance was not paid by the appellant Poliquin is in fact stated in paragraph 4(a) of the agreement—endorsed by the Court—of September 20, 1984, which provides: "the respondent shall retain the arrears of alimentary allowance accumulated from March 4, 1983”.

This passage clearly indicates that the two parties to this agreement considered that weekly alimentary allowance payments had not been made since March 4, 1983, since it speaks of "arrears of alimentary allowance accumulated” since that date.

With respect to 1984, the amount of $4,927.50 was considered to have been deducted from the $20,000 owing to the appellant Poliquin by the appellant Blais as a result of the arrangements made concerning the family home. The weekly alimentary allowance payments of $67.50 that should have been made beginning on October 4, 1984 are to be deducted from the balance owing by the appellant Blais, this balance having been set out in the agreement of September 20, 1984 as $15,072.50. The $4,927.50 was therefore to be deducted on a very precise date, September 20, 1984, the date of the judgment in question, assuming of course that clause 4(a) of the agreement referred to above was valid.

It is admitted that in the present case all the other conditions required for paragraph 60(b) of the Income Tax Act (the Act) to apply are fulfilled, with the exception of the part of that paragraph that refers to "an amount paid by the taxpayer in the year".

We must therefore ask whether the legal acts referred to in paragraph 4 of the agreement of September 20, 1984 between the former spouses amount to payment by the appellant Poliquin of the amounts in question. It will be recalled that paragraph 4 provides for two deductions, one with respect to the $4,927.50 representing arrears of alimentary allowance accumulated from March 4, 1983 to October 4, 1984 and the other concerning the weekly alimentary allowance of $67.50 payable beginning on October 4, 1984 by the appellant Poliquin to the appellant Blais "for the support of their daughter Louise".

First, the word "amount" [somme in the French] used in paragraph 60(b) of the Act is defined in section 248 of the Act. The relevant portion of this definition—which also applies to the word montant in the French —reads as follows:

—"amount" means money, rights or things expressed in terms of the amount of money or the value in terms of money of the right or thing . . .

From the definition of this word—or, more precisely, this part of the definition —I take it that this word refers to money or, in the case of rights or things other than money, the value in terms of money of the right or thing, or the corresponding figure in money terms. I do not believe that we must give this part of the definition any broader scope than what I have just set out. In short, I do not think that this definition is very useful to us here since we are dealing with alimony, and in this context it is entirely natural to express the issue in money.

If we interpret the word “paid” used in paragraph 60(b) using its common or usual meaning it seems clear to me that the amount deducted on the date of the agreement of September 20, 1984, or the amounts to be deducted in future according to paragraph 4 of that agreement, were not “paid” because the verb "pay" in the context of that paragraph means a transfer of money, a handing over of funds. The verb "paid" in the English version of paragraph 60(b) has the same meaning.

If I rely only on the common meaning of the word “paid”, I must find that the legal acts set out in paragraph 4 of the agreement in question, or in other words the operations contemplated by the deductions provided for therein, do not constitute payment of amounts by the appellant Poliquin to the appellant Blais.

We arrive at the same conclusion if we examine the provisions of paragraph 56(1)(b) of the Act, which is the counterpart of the deduction permitted by paragraph 60(b), as the Supreme Court of Canada noted in its decision in Jean- Paul Gagnon v. The Queen, [1986] 1 S.C.R. 264; [1986] C.T.C. 410; 86 D.T.C. 6179.

Paragraph 56(1)(b) provides that "any amount received by the taxpayer in the year" shall be included in the taxpayer's income. In fact, the expression "received" involves the idea of being put in possession of something. Whether the amount is “paid” or "received", both expressions involve the idea of a physical operation involving a transfer of funds.

It is of some interest to note that Parliament has created no legal fiction in either paragraph 60(b) or paragraph 56(1)(b) to extend the scope of the concepts expressed by the words “paid” and "received". For example, Parliament does not say in paragraph 60(b) "any amount paid or deemed to have been paid”. Similarly, in paragraph 56(1)(b), there is no attempt to expand the meaning of the concept "received" by including operations that resemble it. In many other provisions of the Income Tax Act, however, Parliament has used this technique of legislative drafting, notably in the same case of alimony, in sections 56.1 and 60.1, in which it is enacted that certain amounts, on certain conditions, are deemed to have been paid to the taxpayer and received by him for the purposes of certain paragraphs of sections 56 and 60.

The interpretation of the word “paid” used in paragraph 60(b), according to its common meaning, is perfectly consistent with the meaning of the word "received", as it is ordinarily understood, and as is set out in the complementary provision in paragraph 56(1)(b).

Before concluding on this point, we must recall that the rule of statutory interpretation that holds that as a general rule the words in a statute must be given their meaning in common usage is firmly established. It is interesting to read the comments of Pierre-André Côté in his book entitled The Interpretation of Legislation in Canada at pages 197 et seq. See also the decision of the Supreme Court of Canada in Pfizer Co. v. D./M.N.R., [1977] 1 S.C.R. 456; 68 D.L.R. (3d) 9.

This manner of interpreting the condition set out in paragraph 60(b) respecting payment of alimony by the taxpayer may appear to be artificial and stripped of practical meaning. Such an observation could also be made with respect to the interpretation that I have proposed concerning the requirement in paragraph 56(1)(b) stating that this paragraph applies only if the alimony was in fact received by the person entitled.

On reflection, the requirements of paragraphs 56(1)(b) and 60(b) can easily be justified. If we consider this question from the point of view of the person who owes the alimony, it seems reasonable to me for Parliament to authorize a deduction in the actual calculation of income concerning fulfillment of this obligation to pay alimony only if the taxpayer in question actually disbursed funds to satisfy the obligation. Similarly, from the point of view of the recipient of the alimony, Parliament intended that the person entitled to receive it have the necessary liquid funds in hand so as to meet his or her needs and those of his or her children, which is the actual purpose of the alimony, before requiring that that person include the amount of the alimony in his or her income.

I do not believe that for the purposes of the application of paragraphs 60(b) and 56(1)(b) we need to define the precise nature in civil law terms of the deduction of the amount of $4,927.50 dealing with arrears of alimentary allowance and the deductions to be taken for the alimentary allowance of $67.50 owing after the agreement of September 20, 1984. I would come to the same conclusion if the private law applicable to the cases before us were the common law. In any event, I do not think that the character of the deductions provided for in paragraph 4 of the agreement of September 20, 1984 in civil law could alter my conclusion.

In civil law, the operations in relation to the deductions contemplated by paragraph 4 of the agreement may be either in the nature of a release or a case of compensation. It was not suggested to me that they might be anything else.

Counsel for the appellant Blais argued that it could not be compensation in the present case since the appellant Blais was not the creditor of the alimentary allowance, given that it was awarded for the benefit of her daughter. Clearly, if the appellant Poliquin owes the alimentary allowance not to the appellant Blais, but rather to his daughter, it cannot be compensation since the fundamental requirement of article 1187 of the Civil Code of two persons who "are mutually debtor and creditor of each other" has not been met. Nonetheless, this alimentary allowance was payable to the appellant Blais. In any event, in the present case we need not consider this question any further given the position I have taken in these reasons on other points.

Counsel for the appellant Blais also argued that there cannot have been compensation for the debts of the appellant Blais and the appellant Poliquin in the present case because the appellant Poliquin’s debt was in respect of alimentary allowance which is not liable to seizure. There is no doubt that the claim of the appellant Blais with respect to the weekly alimentary allowance that the appellant Poliquin had to pay to her for the support of her daughter is not liable to seizure. The provisions of paragraph 4 of article 553 of the Code of Civil Procedure are absolutely clear on this point. Paragraph 4 of that article provides as follows:

The following are exempt from seizure:

(4) Alimentary allowances granted judicially and sums or pensions given or bequeathed as alimony, even though the deed creating them has not declared them to be exempt from seizure;

Because this debt is not liable to seizure, clearly this is not a case of compensation by the sole operation of law, given the provisions of article 1190 of the Civil Code, part of which reads as follows:

Compensation takes place whatever be the cause or consideration of the debts or of either of them, except in the following cases:

3. A debt which has for object an alimentary provision not liable to seizure.

It is acknowledged that the party in whose sole favour the cause for objection to compensation exists may in certain cases waive the advantage thus conferred by the law. See also article 1194 of the Civil Code on this point. On the other hand, some people might see in paragraph 4 of the agreement of September 20, 1984 simply compensation by agreement between the former spouses. Whether this is compensation by agreement or is a waiver on the part of the appellant Blais of the benefit established in her favour by the fact that compensation does not operate automatically, I am convinced that it is extremely doubtful that the appellant Blais could have agreed to this clause, on the ground that this provision was contrary to the public interest, because the appellant Blais was agreeing to an arrangement that resulted in her losing the benefit of a claim with respect to alimony not liable to seizure, which claim was for the benefit of her daughter. The fact that the agreement of September 20, 1984 was endorsed in a judgment of the Superior Court does not conclusively determine the legality of the clause, because it is well established that the presumption of the validity of a judgment applies only to a judgment after trial, as asserted by Judge Amédée Monet in an unreported judgment of the Quebec Court of Appeal, Géraldine Accurso v. Carrière Mirabel Ltée et autres, on November 7, 1986. The decision of the Supreme Court of Canada in Denis Cossette v. Germain, [1982] 1 S.C.R. 751; 24 R.P.R. 56, is to the same effect.

Even if, contrary to my opinion, paragraph 4 of the agreement in question established compensation, I do not believe that it could be successfully argued that there was therefore a payment of alimony in 1984 by the appellant Poliquin on the ground that in law compensation is considered to be payment. Jean Pineau, in his work "Théorie des Obligations”, based on the comments of the French legal author Jean Carbonnier in his work on property and obligations, did draw a parallel between compensation and a sort of payment when he stated, at page 192: [Translation] “It could as well be said, with Carbonnier, that to compensate is to pay, and that compensation is abridged payment, in that a duplicate transfer of funds is averted". If we analyze this author's comments carefully, we find that he is not saying that compensation is simply payment, but rather that it has in a way the effect of payment. This point of view is supported by Jean-Louis Beaudoin, who wrote the following with respect to compensation in his work "Les obligations" at page 496: [Translation] “It is therefore in one sense a forced double payment" [Emphasis added]. It must not be forgotten that the Civil Code deals with payment and compensation as two entirely distinct methods of extinguishing obligations. As I tried to show earlier, I am of the opinion that even if the agreement of September 20, 1984 had established compensation, this point was not decisive because I believe that in interpreting paragraphs 56(1)(b) and 60(b) we must keep to the common or usual meaning of the words “paid” and "received" that are used in these paragraphs.

Counsel for the appellant Blais argued that clause 4 of the agreement of September 20, 1984 could amount to a release in civil law, but that the appellant Blais could not have agreed to it because the alimentary allowance was payable for the benefit of her minor daughter.

I do not need to decide this question, but at first glance I am doubtful as to the merits of this argument because in my view the concept of release implies a gift without consideration, and here the parties clearly did not intend to take advantage. Some authors do argue that release may exist in the absence of animus donandi.

Counsel for the respondent in each of these cases drew my attention to the decision of my brother Judge Bonner in M. Hope Armstrong v. M.N.R., [1988] 1 C.T.C. 2019; 88 D.T.C. 1015. The arrangement between the parties in that case is described at page 2020 (D.T.C. 1016) of these reports as follows:

. . . I gather from all that the appellant said, taken in context, that she agreed, albeit reluctantly, to permit her husband to discharge his obligation to pay maintenance by way of set off against the appellant’s obligation to pay the $5,700. This conclusion is supported by the statement, Exhibit A-2, in which the appellant recorded the set off process.

Judge Bonner concluded in that case that by operation of the common law "set-off" the husband discharged the obligation he had contracted in a written separation agreement and that his wife had therefore received taxable amounts.

I do not believe that we have here a case of compensation which, I would note in passing, is different from "set-off" in common law, in a number of respects. Moreover, it is perhaps not unimportant to mention that the alimentary allowance owing to the appellant Blais was exclusively for the benefit of her daughter while in the Armstrong case the maintenance was payable for the support of the ex-wife and the children.

Before concluding, I should analyze the evidence as to the amounts of the alimony in issue in these appeals. At the beginning of the hearing of the appeals, counsel for the respondent was given leave by the Court to amend paragraph 2 of the reply to the notice of appeal in the case of the appellant Poliquin, so that this paragraph should now read as follows:

[Translation]

The appellant claimed a deduction for his 1983 and 1984 taxation years of amounts totalling $4,595.00 in 1983 and $3,510.00 in 1984 as alimony and of $1,650.00 as legal fees.

The amount of the alimony in issue for 1984 is therefore $3,510 ($67.50 x 52 weeks). For 1983, the amount of the alimony should be the same, in view of the terms of the agreement dated September 22,1981—endorsed by the Court on the same date—unless, of course, some alimony payments were in fact made. This latter possibility does not seem illogical, given that there is a calculation in the agreement of September 24, 1984 of the arrears of alimentary allowance from March 4, 1983 and not from January 1 of that year, and given what is also said in paragraphs (d), (e), (g) and (i) of paragraph 9 of the reply to the notice of appeal in the case of the appellant Blais. On the other hand, paragraph 3 of the reply to the notice of appeal in the case of the appellant Blais and paragraph 2 as amended of the reply to the notice of appeal in the Poliquin case gives the amount of $4,950 as alimony. The notices of appeal of the two taxpayers does not shed any more light on the situation.

It has been admitted by the parties involved that legal fees—paid or incurred by the appellants Blais and Poliquin—relating, I assume, to the agreement of September 20, 1984, are not deductible in calculating the income of each of the appellants. These fees have perhaps been included in the amount of $4,950 referred to in the respondent's pleadings in the cases of the appellants Blais and Poliquin.

I therefore find that the appellant Poliquin was not entitled in calculating his income for 1983 and 1984 to deduct the amounts of $67.50 which became due each week to the appellant Blais, which amounts were to be deducted from a debt undertaken to him by the appellant Blais. With respect to the appellant Blais, whose appeal relates only to 1983, she is not required to include in her income for the year in question the amounts of alimony that were owed to her by the appellant Poliquin which he has attempted to deduct.

For these reasons, I dismiss the appeal of the appellant Poliquin from the income tax assessments for the 1983 and 1984 taxation years. I allow the appeal of the appellant Blais with costs and the matter is referred back to the Minister for reconsideration and reassessment on the basis that the alimony payable to the appellant, and which was to have been deducted from the balance of the debt owing by the appellant to the appellant Poliquin, should not be included in calculating the appellant's income.

In view of the unsatisfactory evidence with respect to the amounts of alimony in issue in 1983, I ask counsel for the appellant Blais and the respondent, in co-operation with the agent for the appellant Poliquin, to submit draft judgments in these appeals to the Court as soon as possible for my consideration.

Appeal allowed.