Robert J Byers v. Minister of National Revenue, [1985] 1 CTC 2146, 85 DTC 129

Bonner, TCJ:—By order dated March 9, 1978, the Supreme Court of British Columbia directed Robert J Byers, the appellant herein, to:

. . . pay to the Petitioner, Lorraine Isabelle Byers, for her own maintenance the sum of Seven Hundred Dollars per month, commencing on the 1st day of February, 1978, out of which said amount the Petitioner shall pay the monthly mortgage payments on the residential home located at 563 Laurentian Crescent, Coquitlam, British Columbia.

The appellant complied with the order and in his income tax returns claimed deductions under paragraph 60(b) of the Income Tax Act in respect of the payments.

Paragraph 60(b) of the Act reads:

60. There may be deducted in computing a taxpayer’s income for a taxation year such of the following amounts as are applicable:

(b) 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 sepa- ration 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;

The Minister assessed tax for the 1978 to 1981 taxation years of the appellant on the basis that the “mortgage payment portion” of the amounts paid by the appellant to his spouse were not deductible. The appellant appeals from those assessments. In a form which accompanied the 1978 assessment the Minister explained his action as follows:

In order for maintenance payments to be deductible, they must, among other things, be paid as an allowance. An allowance is a predetermined specified sum of money which, once paid, is under the complete control of the payee and the payee is not required to account for it.

Since your ex-spouse is required by the court order to pay the monthly mortgage payments on the matrimonial home out of the sum she receives as maintenance from you, that amount is not deductible.

It is evident that the Minister, in formulating his explanation, quoted part of the following passage from the reasons for judgment in The Queen v Morton Pascoe, [1976] 1 FC 372 at 374; [1975] CTC 656 at 658; 75 DTC 5427 at 5428.

First we are of opinion that the payment of those sums did not constitute the payment of an allowance within the meaning of section 11(1)(1). 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.

Evidence was given at the hearing of the appeals which established that the mortgage which had encumbered the home at the time the court order was made matured late in 1978 and was then renewed at a higher rate of interest. In consequence the amount of the monthly payments which Lorraine Byers had to make was increased. Despite that increase the amount paid by the appellant to Mrs Byers did not change. It was also established that title to the home was held by the appellant and Lorraine Byers as joint tenants.

In my view the word “allowance” in its ordinary meaning comprehends payments intended to cover defined classes of expense. For example a payment or series of payments made by a parent to a child can properly be called an allowance, even though the parent specifies the use or uses to which the money is to be applied.

I construe the court order in question here as doing nothing more than specifying one of the classes of expense intended to be covered by the $700 monthly payment. It is evident that the parties so construed the order because, as previously noted, when the mortgage payments increased the monthly payments made by the appellant to Mrs Byers did not. It was, I assume, thought necessary in drafting the order to identify Mrs Byers as the person liable to make the mortgage payments because the house was owned jointly and both she and the appellant were, without doubt, jointly liable on the usual covenant in the mortgage to repay the borrowed money.

There is, in my view, a marked distinction between the allowance in question here which was intended to cover a myriad of purposes, only one of which was the mortgage component of Mrs Byers’ shelter costs, and obligations to pay creditors directly or to indemnify a spouse against named classes of expense of the sort in question in the Pascoe, Weaver* [1] and Gagnon^ [2] cases relied on by counsel for the Minister. I note too that the appellant’s obligation to pay $700 per month is not expressly made conditional on payment by Mrs Byers of the mortgage instalments.

For the foregoing reasons the appeals will be allowed and the reassessments referred back to the respondent for reconsideration and reassessment on the basis that the appellant is entitled to the deductions in question.

The appellant shall have his costs.

Appeal allowed.