Hay v. R., [1997] 2 CTC 2305

Bowman T.C.J.:

These appeals are from assessments for 1993 and 1994. The issue is whether the appellant is entitled to deduct $2,100 and $1,200 in those years pursuant to paragraph 60(c) of the Income Tax Act. The payments were made prior to the entering into of a written agreement and the sole question is whether they fall within the provisions of subsection 60.1(3), which reads as follows:

For the purposes of this section and section 60, where a decree, order or judgment of a competent tribunal or a written agreement made at any time in a taxation year provides that an amount paid before that time and in the year or the preceding taxation year is to be considered to have been paid and received thereunder, the amount shall be deemed to have been paid thereunder.

The admitted facts are that the appellant and Erica Colleen Little had a child on July 12, 1992. They were not married and at no time that is material to this case did they live together as husband and wife. The agreement which they entered into with respect to the maintenance and custody of the child, Ryan Duncan Cooper Hay, demonstrates commendable responsibility on both their parts as parents. Recital F of the agreement reads as follows:

F. The Father has paid to the Mother as child maintenance the following sums:

$150.00 per month during the months of February, 1993 and March, 1993; and

$200.00 per month from and including April, 1993 up to and including June, 1994;

Paragraph 2 of clause 11 of the agreement reads as follows:

(2) The child maintenance described in Recital F shall be part of the Mother’s income in years received and a corresponding deduction for the Father in those years pursuant to the Income Tax Act of Canada and if necessary, the parties shall amend and refile their 1993 Income Tax Returns accordingly.

Clause 20 reads as follows:

20. The Mother and the Father further agree that the provisions of the Family Relations Act shall be applicable to this Agreement and attached hereto as Schedules “A” and “B” are the consents of the Mother and of the Father respectively.

The agreement was filed in the Provincial Court of British Columbia and accordingly under section 74 of the Family Relations Act of British Columbia, R.S.B.C. 1979, c. 121, its provisions relating to the maintenance of the child are enforceable as if the provisions were contained in a court order. In my view this satisfies the conditions of paragraph 60(c) of the Income Tax Act provided that the appellant can bring the provisions which I quoted above from the agreement within subsection 60.1(3). I am obliged to counsel for the respondent for very fairly drawing to my attention the provisions of the Family Relations Act.

The remaining question is whether the provisions of the agreement can on a fair reading be said to provide that

... an amount paid before that time [the date of the agreement, June 22, 1994] is to be considered to have been paid and received [under the agreement].

It does not say so specifically. It is, however, in my view implicit in the recital of the payments in paragraph F and the undertaking that the amounts referred to in recital F be deductible by the farther and that they form part of the mother’s income. There would be no purpose in those provisions other than to render operative subsection 60.1(3).

Two cases under this section were referred to. The first is Pallotto v. R., (sub nom. Pallotto v. Canada) [1993] 2 C.T.C. 3024, 48 R.F.L. (3d) 116 (T.C.C.). In that case it was held that a retroactive order of the British Columbia Supreme Court in 1993 ordering that the husband and wife refile their 1991 returns of income in such a manner that the wife include in income payments made in 1991 and the husband deduct the amounts was ineffective to bring the payments within subsection 60.1(3).

The other case is Chabros v. R., (Chabros v. Canada) [1995] 1 C.T.C. 333, 95 D.T.C. 5247. In that case there was simply nothing in the agreements which one could infer an intention that subsection 60.1(3) was to apply to the prior payments.

I do not think that either case is of assistance here. In the Chabros case the wording of the agreement was insufficient and in the Pallotto case the court order purported to extend back two years. Subsection 60.1(3) permits a retroactive application only to the preceding year.

In this case we may infer an intent that the provisions of subsection 60.1(3) were to apply, even though the provision was not specifically referred to.

The appeals are allowed and the assessments for 1993 and 1994 are referred back to the Minister of National Revenue for reconsideration and re- assessment on the basis that the appellant is entitled to deduct in computing his income $2,100 and $1,200 for those years respectively under paragraph 60(c) of the Income Tax Act. The appellant is entitled to his costs, if any. Since he was represented by an agent and not by counsel there will be no counsel fee.

Appeals allowed.