Seater v. R., [1997] 1 CTC 2204, [1997] 1 CTC 2270 (Informal Procedure)

Rip J.T .C.C.: - Ann Waddon, the appellant, has appealed a reassessment of income tax for the 1991 taxation year since she “never” received more than $2,000.00 per month as child support from her husband.

The Minister of National Revenue (“Minister”) added the sum of $5,572.36 to Mrs. Waddon’s declared income on the basis that this amount, in addition to the amount of $22,250.00 declared in her tax return, was received by her from her husband in 1991 as maintenance for her children.

At all relevant times Mr. and Mrs. Waddon were the parents of two children. On or about March 12, 1987 they executed a Separation Agreement which provided, amongst other things, for Mr. Waddon to pay to Mrs. Waddon for the support of the children the sum of $1,000.00 per month. They also agreed (paragraph 11) that the amount of the child support

...will change at one year intervals, in accordance with the indexing factor, as defined in section 34(6) of the Family Law Act [1]

Section 34(6) of the Family Law Act provides that:

The indexing factor for a given month is the percentage change in the Consumer Price Index for Canada for prices of all items since the same month of the previous year, as published by Statistics Canada, 1986, c. 4, s. 34(3-6).

The Separation Agreement also provided at subparagraph 11(3), that:

The wife shall notify the husband in writing on or before February 1st in each year of the amount of the indexed support payments which will be payable for that year, commencing March 1st.

The provision for payment of child support is found in paragraph 10 of the Separation Agreement. This is the only provision in the Separation Agreement providing for any support, although there are provisions for the husband to maintain in force medical and dental insurance, or be liable for such expenses of the wife and children. Neither Mr. nor Mrs. Waddon claimed spousal support.

While preparing these reasons, I realized that subparagraph 11(1) of the Separation Agreement provides that “[t]he amount of support payable pursuant to paragraph 4 will change at one year intervals ...” (my emphasis). Paragraph 4 of the Separation Agreement provides that the spouses will continue to live separate and apart; there is no provision for payment of support in paragraph 4. This error was not raised at trial. In my view, since paragraph 10 of the Separation Agreement is the only provision in that Agreement providing for payment of support and since both Mr. and Mrs. Waddon acknowledged during the hearing of this appeal that the support payments were subject to a cost of living adjustment (“COLA”), I conclude that the reference to paragraph 4 in subparagraph 11(1) of the Separation Agreement was a typographical slip and that the parties understand — and agree — the correct reference in subparagraph 11(1) is to paragraph 10.

On separation, Mr. Waddon continued to live in the same residence as Mrs. Waddon and their children. Under the terms of the Separation Agreement Mr. Waddon was to pay one-half share of the mortgage payments, realty taxes and insurance, one-third of the weekly food bill and heating oil bill, one-half of basic telephone and common long distance charges and his share of long distance charges and one-half of maintenance costs of the house, children’s activities and baby-sitting. I refer to these costs as “shared living expenses”.

Mrs. Waddon testified that in 1991 her husband paid her the equivalent of $3,000.00 per month. She said the $3,000.00 was made up of the $2,000.00 he was to pay her for support of the children and the balance of $1,000.00 represented shared living expenses and a small portion of expenses in 1991 from a farm they operated as partners. She said she paid most of the shared living expenses after separation. Mrs. Waddon insisted none of the $1,000.00 represented the COLA for the children’s maintenance.

Mrs. Waddon acknowledged her husband paid “some small bills” but declared she “paid the lion’s share” of living expenses. She also said she paid the greater portion of expenses incurred in operating the farm.

Mrs. Waddon provided copies of eleven cheques paid to her, each in the amount of $3,000.00, in 1991 for the months of January to November inclusive. Mr. Waddon testified he gave Mrs. Waddon cash for December 1991. In her evidence Mrs. Waddon, denied any such cash payments but said payment was made for December.

Mr. Waddon prepared his wife’s 1991 tax return and entered the amount of $22,250.00 on line 128 of the tax return, alimony or separation allowance income. He testified that in preparing his wife’s 1991 tax return he entered the amount of $22,250.00 instead of $36,000.00 for his wife’s benefit. As a result of including the amount of $22,250.00 in her income, Mrs. Waddon had a balance due to her for 1991 income tax of $29.41. He stated that if he had reported the full amount he gave her for support she would have had to pay more tax. Since he was not employed for periods in 1991, he had insufficient income to make use of the full amount he paid his wife for support as a deduction in computing his own income for 1991.

Mrs. Waddon testified she never asked her husband in writing for the cost of living allowance as required under the Separation Agreement. She also denied asking him orally for the additional money, although he testified she did.

Finally Mrs. Waddon testified that it was only in 1991 that her husband paid amounts in excess of $2,000.00 per month and only because I insisted he pay the living expenses”. Mrs. Waddon said in a question put to her by respondent’s counsel, that she did not remember her husband paying in 1991 approximately $7,000.00 of taxes for her 1990 taxation year.

Mr. Waddon testified that since April 1988 he had been paying his wife more than $2,000.00 per month for the maintenance of the children. He produced cancelled cheques payable to Mrs. Waddon. The first cheque, dated February 2, 1988, was in the amount of $2,000.00. Starting in April 1988 until August 1989, each monthly cheque was for $2,500.00. The cheque for September 1989 was for $2,801.75. For the period October 1988 to July 1989, the cheques were in the amount of $2,500.00 each. In August 1989, Mr. Waddon appears to have transferred $3,000.00 to Mrs. Waddon’s bank account and paid her $2,500.00 by cheque. In September 1989 he paid her $2,000.00 by cheque and starting in October 1989, commenced paying her $3,000.00 monthly.

Mr. Waddon also produced a two-page list of expenses he paid in 1991 for child support, maintenance and housekeeping and two pages of farm expenses he personally paid in 1991. He was prepared to produce cancelled cheques to support his claim of payments, but Mrs. Waddon acknowledged he paid these expenses and agreed the cheques need not be produced. She also acknowledged he paid her income tax due for 1990 on April 30, 1991 in the amount of $7,787.10.

According to Mr. Waddon’s calculations, in 1991 he paid child support, maintenance and housekeeping expenses totalling $53,420.40. The amount for child support was $28,099.92, his share of the mortgage and property tax was $10,400.00 and $299.59 respectively. His share of food and heating and hydro was $1,725.22 and $467.24 respectively. In his view, he overpaid his wife by $12,436.44. He also calculated he paid farm expenses, including insurance, of $24,222.21. Mr. Waddon declared that he paid all he was required to pay under the Separation Agreement.

Mr. Waddon explained he paid monthly amounts in excess of $2,000.00 because his wife told him she required more money. She did not give him the written notice required by subparagraph 11(3) of the Separation Agreement.

I prefer Mr. Waddon’s evidence to that of Mrs. Waddon. His testimony was buttressed by documentary evidence. With respect to matters in dispute, Mrs. Waddon relied solely on her memory, which I found not to be reliable. For example, she denied her husband paid the balance owing for her 1990 income tax but he produced documentary evidence to the contrary; also, the appellant agreed her husband’s list of expenses he paid for child support in 1991 was supported by cancelled cheques. Any documentary evidence she produced, such as copies of cheques paid to her by her husband for support of the children, simply corroborated her husband’s version of events.

Revenue Canada added $5,572.36 to Mrs. Waddon’s income for 1991 by adding the cost of living adjustment to the $2,000.00 required to be paid by the Separation Agreement. In March 1988 Mr. Waddon was to pay his wife $2,000.00 per month for child support. In March 1989 and each subsequent March the amount was to be increased by the indexing factor referred to in subparagraph 24(4) of the Family Law Act. Revenue Canada calculated the monthly amounts payable were as follows [2] :

According to the indexing factor, Mr. Waddon was to pay to his wife in 1991 the amounts of $2,202.88 for January and February and the amount of $2,341.66 for the months of March to (and including) December 1991. These amounts aggregate $27,822.36. The difference between the amount of $27,822.36 and the amount of $22,250.00 reported in Mrs. Waddon’s 1991 tax return is the amount added to her income, $5,572.36. Not all of the $33,000.00 (or $36,000.00 according to Mr. Waddon) received by Mrs. Waddon from her husband in 1991 is included in income.

It was suggested that because Mrs. Waddon did not give notice in writing to her husband in accordance with subparagraph 11(c) of the Separation Agreement, any money he paid monthly in 1991 in excess of $2,000.00 is not to be included in the appellant’s income. According to the terms of the Separation Agreement the amount of child support was to change yearly according to COLA. The obligation to pay COLA was not triggered by the notice provided for in subparagraph 11(3) of the Separation Agreement: the notice set out in subparagraph 11(3) informs the husband the amount of the indexed support payments for the year. The requirement to make indexed support payments is not contingent on the wife making notice in writing. In any event, the notice is for the benefit of the husband who may waive it, and he did waive notice when he made monthly payments in excess of the $2,000.00 required to be made under paragraph 10 of the Separation Agreement.

A portion of the monthly payment in excess of $2,000.00 received by the appellant from her husband in 1991 represented COLA required to be paid to her by her husband according to the terms of the Separation Agreement. The aggregate of the payments of $22,250.00 and $5,572.36, representing COLA, that is $27,822.36, was correctly included in the appellant’s income for 1991 by Revenue Canada.

The appeal is dismissed.

Appeal dismissed.