Michel Lariviére v. Her Majesty the Queen, 86 DTC 6549, [1986] 1 CTC 206, [1987] 1 CTC 50

Pinard, J. [Translation]:—This appeal is pursuant to subsection 172(2) of the Income Tax Act, S.C. 1970-71-72, c. 63, as amended and is brought by the taxpayer Michel Larivière against a notice of reassessment by the Minister of National Revenue in respect of the 1978 and 1979 taxation years.

In his notification affirming the said notices of assessment, the Minister of National Revenue gave the following reasons:

Because the payments made by the taxpayer to his former spouse, amounting to $5,110 in 1978 and $4,020 in 1979, were not payments made in the year pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written agreement within the meaning of s. 60(b) of the Act; and because the sum of $10,000 in 1979 was not alimony or some other allowance payable on a periodic basis for the maintenance of the spouse or former spouse and/or children of the marriage within the meaning of s. 60(b) or s. 60.1 of the Act.

The question here is thus as to the application of sections 60(b) and 60.1 of the Income Tax Act, which read as follows:

Sec. 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:

(b) Alimony payments. an amount paid 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 he was living apart from, and was separated pursuant to a divorce, judicial separation or written separation agreement from, his spouse or former spouse to whom he was required to make the payment at the time the payment was made and throughout the remainder of the year;

Sec. 60.1

Maintenance payments. Where, after May 6, 1974, a decree, order, judgment or written agreement described in paragraph 60(b) or (c), or any variation thereof, has been made providing for the periodic payment of an amount by the taxpayer to or for the benefit of his spouse, former spouse or children of the marriage in the custody of the spouse or former spouse, the amount or any part thereof, when paid, shall be deemed to have been paid to and received by the spouse or former spouse if the taxpayer was living apart from the spouse or former spouse at the time the payment was received and throughout the remainder of the year in which the payment was received.

At the start of the hearing counsel for the respondent confirmed that the latter regarded the appeal as valid with respect to the amounts of $5,110 in 1978 and $4,020 in 1979, claimed by the appellant as deductions for alimony. Counsel for the two parties then consented to the rendering of judgment accordingly on this part of the appeal, which was no longer in dispute. The written consent which I requested at that time has subsequently been filed. On the remainder, the parties asked the Court to decide only the question regarding deduction of the sum of $10,000 in the 1979 taxation year.

In this regard, a decree nisi by the Quebec Superior Court on March 13, 1979 directed the appellant to pay his spouse, for her maintenance and/or accommodation, the total sum of $20,000, $10,000 of which would be payable on April 1, 1979 followed by two payments of $5,000 each to be made on April 1, 1980 and 1981 respectively. The relevant portion of that judgment explained:

Thus, in view of the facts disclosed by the evidence as a whole, including the circumstances indicated earlier, relying on the provisions of s. 11(1)(a)(i) of the Divorce Act, the Court is of the opinion with respect to the maintenance and/or accommodation of the respondent that, in view of the circumstances, instead of awarding her alimony payable in monthly instalments it is better to make an order directing the applicant to pay the respondent the total sum of $20,000, to be paid in instalments as follows, namely: $10,000 payable on April 1 next, followed by two further annual, equal and consecutive payments of $5,000 each payable on April 1, 1980 and 1981 respectively.

Subparagraph 11(1)(a)(i) of the Divorce Act provides that, in a decree nisi, the Court may make an order “requiring the husband to secure or to pay such lump sum or periodic sums as the court thinks reasonable for the maintenance of the wife”.

It should be further be mentioned that the amount of $20,000 was awarded to the appellant [sic] by Bernier, J. of the Quebec Superior Court in his judgment mentioned above under the heading of “maintenance”. That judgment further disposed of two other types of application for corollary relief made by the appellant's wife: first, under the heading “gift of personal property”, the judgment declared the wife to be the sole owner of the furniture and personal effects in her possession at the time, as a consequence of the terms of the contract of marriage; then, under the heading “lump sum”, the Court dismissed the application by the appellant's wife on the ground that she had not contributed to his businesses “by any financial input on her part”.

As a question of fact, therefore, it is clear that the disputed amount of $10,000 is the first portion of the lump sum of $20,000 which the appellant was directed to pay his wife, for her maintenance and/or accommodation, by the decree nisi mentioned above.

It is also generally admitted that the payment of $10,000 in question here meets several of the conditions stated in sections 60(b) and 60.1 of the Act: it was paid by the appellant in 1979 pursuant to the judgment of a competent tribunal; it was paid to the appellant’s former spouse; and finally, at the time the payment was made and throughout the remainder of 1979, the appellant was separated pursuant to a divorce from his former spouse to whom he was required to make the payment.

However, the respondent argued that this sum of $10,000, which the appellant claims to be able to deduct, was not paid “as alimony or other allo- wance payabie on a periodic basis for the maintenance of the recipient thereof". Counsel for the respondent accordingly suggested that this is not alimony within the meaning of the Income Tax Act, even if the sum of $10,000 can be regarded as “maintenance" within the meaning of the Civil Code of the province of Quebec. Counsel for the respondent further argued that the sum of $10,000 could not be an “allowance payable on a periodic basis for the maintenance of the recipient thereof" because it was part of a lump sum of $20,000 payable in three instalments, the last two of which were $5,000 each.

Counsel for the appellant maintained that the sum of $10,000 was part of a total allowance of $20,000 destined exclusively for the maintenance of his client's former spouse; he added that the total allowance of $20,000 was made payable in three fixed instalments at three specific periods of time, and these were therefore allowances payable on a periodic basis.

For my part I consider that, though under paragraph 60(b) of the Act the disputed amount of $10,000 could not have been paid “as alimony", it was nevertheless at least in part “for maintenance of the recipient thereof" for a year; additionally, I consider that this amount could not be “[an]other allowance payable on a periodic basis”.

First, like the Federal Court in Veliotis v. The Queen, [1974] F.C. 1; [1974] C.T.C. 237, I think it is clear that this amount was not paid “as alimony". It should be mentioned that this judgment followed a decree nisi which had awarded the wife the sum of $50,000, $25,000 of which was payable within 15 days of the decree absolute and the remainder in three equal annual instalments. At page 7 (C.T.C. 240) of the said judgment Pratte, J., referring to paragraph 11(1)(l) of the Act, identical to the present paragraph 60(b), said:

The word “alimony”, which in the French version of paragraph 11 (1 )(l), is translated by the expression “pension alimentaire”, has a narrower meaning than that expression: it refers only to the periodic allowance which, pursuant to a judgment, one spouse must pay the other during the marriage. (See Halsbury's Laws of England, 3rd ed, vol 12, p 288.)

The same judge expressed the same view, this time as a member of the Federal Court of Appeal, in the subsequent case of The Queen v. Gagnon, [1981] C.T.C. 463; 81 D.T.C. 5377:

I think it is clear that the amounts in question were not paid as a “pension alimentaire” in the sense in which that phrase is used in paragraph 60(b). In that provision the phrase has the limited sense of the English word “alimony”, which refers only to the payment a spouse must make to his spouse during the marriage.

Then, in Veliotis (supra), the Federal Court expressly defined “other allowance payable on a periodic basis" mentioned in paragraph 60(b) of the Act. The first part of that definition may be cited at this stage (p. 8 [C.T.C. 240]):

In my view, the allowance payable on a periodic basis referred to in paragraph 11 (1)(l) is periodic in the same sense as alimony, and alimony is a periodic allowance not only in the sense that the payer must make payments at regular intervals, but also in the sense that at regular intervals the payer must provide a sum adequate to maintain the payee until the next payment. Consequently, a divorce decree which ordered a husband to pay his spouse the sum of $100,000 in four monthly instalments of $25,000 would not in the normal course be a judgment ordering the payment of a periodic allowance within the meaning of paragraph 11(1)(l).

Applying this part of the definition to the facts of the case at bar, I have no difficulty in finding that the appellant was required to pay the last two instalments of $5,000 each strictly for the maintenance of the recipient, his former spouse; as to whether the first instalment of $10,000 constituted "a sum adequate to maintain the payee until the next payment”, the evidence is not conclusive on this point.

This conclusion also, in my view, is in keeping with the meaning given to the word "allowance” by the Federal Court of Appeal in The Queen v. Pascoe, [1976] 1 F.C. 372 at 374; [1975] C.T.C. 656 at 658 (see to the same effect The Queen v. Gagnon, [1981] C.T.C. 463; 81 D.T.C. 5378):

An allowance is, in our view, a limited predetermined sum of money paid to enable the recipient to provide for certain kinds of expense; its amount is determined in advance and, once paid, it is at the complete disposition of the recipient who is not required to account for it. A payment in satisfaction of an obligation to indemnify or reimburse someone or to defray his or her actual expenses is not an allowance; it is not a sum allowed to the recipient to be applied in his or her discretion to certain kinds of expense.

Finally, I am unable to rule in favour of the appellant particularly because of the last part of the definition of "other allowance payable on a periodic basis” in Veliotis (supra), at p. 8 [C.T.C. 240-41]), reproduced below:

Moreover, it should be noted that the section refers to a sum paid as an “allowance payable on a periodic basis”. An allowance is a specific sum of money paid to someone. An allowance is payable on a periodic basis when a specific sum of money is payable at regular intervals. A judgment does not create an obligation to pay an allowance on a periodic basis if it does not require the payer to pay the same sum of money at regular intervals. In the case at bar the divorce decree may impose on the plaintiff an obligation to make certain payments on a periodic basis; but it does not require him to make a periodic allowance to his spouse of $25,000.00

The matter is very clear: the instalments must all be equal. Otherwise, how is one to understand the words “pay the same sum of money at regular intervals”? (this is my emphasis here). Furthermore, the context of this definition developed above by Pratte, J. leaves no room for doubt: the emphasis given to the words "an” or "a”, underlined three times, in conjunction with the allowance or the sum payable, and the example based on the facts of the case at the end of the definition are very significant in this regard. In the case at bar, only two of the three instalments are equal, so that an important requirement defined by the Federal Court has not been met. Accordingly, contrary to the view stated much earlier, in 1957, by the Tax Review Board of the time, in No. 427 v. M.N.R., 17 Tax A.B.C. 264 at 269; 57 D.T.C. 291 at 294, all the payments must be identical if each of them is to be regarded as "[an]other allowance payable on a periodic basis” within the meaning of paragraph 60(b) of the Act.

Further, this conclusion appears to be in keeping with the recent analysis of paragraph 56(1 )(b) of the Act in The Queen v. Sills. That section of the Act is to some extent the complement of paragraph 60(b), since it deals with the inclusion in the recipient's income of the "allowance payable on a periodic basis” which paragraph 60(b) makes deductible from the payer's income. It is thus the same allowance in both cases. In Sills, Heald, J. did not specifically state that the amounts payable must be equal and identical if each is to be an "allowance payable on a periodic basis”; in my view, that was not necessary in the particular facts of the case; in the case at bar, even though the issue was whether arrears accumulated at irregular intervals were deductible, there was originally an allowance payable in equal monthly instalments of $300 each. In Pascoe (supra), the Court held (at 374 [C.T.C. 658]) that the Act referred to the way in which the allowance is payable and not the way in which it was in fact paid.

As to the equally recent judgment of the Federal Court in Hanlin v. The Queen, [1985] 1 C.T.C. 54; 85 D.T.C. 5052, referred to by learned counsel for the appellant, the spouses had expressly agreed that the sums payable ($18,000, $19,000 and $17,000) were payable by the husband pursuant to paragraph 60(b) of the Act; the decree absolute thus only confirmed and ratified this specific written agreement.

I must therefore conclude that in the case at bar the appellant was not entitled to deduct the sum of $10,000 which he is claiming for 1979.

In view of the partial agreement concluded between the parties at the start of the hearing, since the appeal has been allowed for amounts totalling $9,130, and in light of the outcome of the appeal as to the part still at issue, with the appeal not being allowed for an amount almost identical to $10,000, each party shall pay its own costs.

Appeal allowed in part.