Gibson v. R., [1998] 1 CTC 2883, 98 DTC 1248

Bonner T.C.J.:

The Appellant appeals from assessments of income tax for the 1992, 1993 and 1994 taxation years. The Appellant’s marriage broke down. His spouse moved out of the matrimonial home. The Appellant and his spouse entered into a written agreement dated February 1, 1991 which reads as follows:

Separation Agreement:

February 1, 199]

This agreement is made by John Gibson and Bonnie Gibson is to verify support payments made monthly by John Gibson to cover the cost of Bonnie Gibson's portion of property own [sic] by both, and to cover (in-part) the cost of any maintenance agreed by both, to be done for the general up-keep of the property. It is agreed that this payment be made until such times as the property (Home) is sold and divided equally. ($750.00) Per Month.

John Gibson has agreed to continue to pay for the existing Life Insurance policies taken out on both John Gibson and Bonnie Gibson (through Gerling Global). Policy #’s (094950-8) and (09449-0). Until such time as a new agreement is written.

It is agreed that Jennifer Gibson (Daughter) will reside with her mother under her mothers [sic] care, and that John Gibson Jr. (Son) will reside with his father under his father [sic] care, and agreed that Liberal access to each child be granted by either party.

It is agreed that John Gibson will continue to support Jennifer Gibson (Daughter) after the above-mentioned property is sold and divided equally. ($300.00) Per Month.

John C. Gibson

Date. February 01 1991.

Bonnie L. Gibson

At the hearing of the appeals the Appellant gave evidence in which he explained the background to the first paragraph of the agreement. He and Bonnie Gibson jointly owned the matrimonial home in Caledon, Ontario. At the time of the matrimonial breakdown the real estate market in the area was depressed. The couple therefore decided that Mr. Gibson should remain in the house, maintain it and keep up the mortgage payments until the house could be sold for an appropriate price. The $750 per month figure named in the agreement consisted of the mortgage and tax payments. The house was sold in April of 1994,

The Appellant, in his income tax returns claimed deductions of $9,000 for the years 1992 and 1993 and $3,400 for 1994. The latter figure consisted in part of mortgage and tax instalments made prior to the sale of the house and in part of payments of the $300 support for Jennifer Gibson, the Appellant’s adopted daughter.

Paragraph 60(b) of the Income Tax Act in the form applicable to this case reads:

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 the taxpayer was living apart from, and was separated pursuant to a divorce, judicial separation or written separation agreement from, the taxpayer’s spouse or former spouse to whom the taxpayer was required to make the payment at the time the payment was made and throughout the remainder of the year.

Paragraph 60(b) permits the deduction of periodic alimony payments made to a separated spouse pursuant to a written agreement. The payments must be for the maintenance of the recipient, children of the marriage or both.

One of the issues raised in the Reply to the Notice of Appeal was whether there existed a written agreement pursuant to which the payments were made. At the hearing of the appeals, the agreement set out above was produced by the Appellant. Counsel for the Respondent neither cross-examined nor suggested in argument any basis on which it can be found either that the agreement was not made on or about the date which it bears or that it did not govern the relationship between the Appellant and his then spouse, Bonnie Gibson.

The second pleaded issue pertains to the relationship between the Appellant and Jennifer Gibson. Counsel for the Respondent seemed to place great emphasis on the fact that the Appellant was not the biological father of Jennifer Gibson. It was common ground however that Jennifer Gibson was the daughter of Bonnie Gibson. The evidence established that Jennifer had been lawfully adopted by the Appellant. Clearly she falls within the extended meaning of the word “child” to be found in paragraph 252(1)(d) of the Act. In my view a person who is a child of a taxpayer’s spouse and who is adopted by the taxpayer during the existence of the marriage must be regarded as falling within the ordinary meaning “child of the marriage” as used in paragraph 60(b). Furthermore effect must be given to subsection 158(2) of the Child and Family Services Act, R.S.O. 1990 c. C. 11 in relation to the status of a child adopted under the laws of Ontario:

(2) For all purposes of law, as of the date of the making of an adoption order,

(a) the adopted child becomes the child of the adoptive parent and the adoptive parent becomes the parent of the adopted child; and

(b) the adopted child ceases to be the child of the person who was his or her parent before the adoption order was made and that person ceases to be the parent of the adopted child, except where the person is the spouse of the adoptive parent,

as if the adopted child had been born to the adoptive parent.

The evidence is sketchy but it would seem that the payments under the first paragraph of the above agreement were, within the meaning of paragraph 60.1 (1 )(b) of the Act “for the benefit of...” Bonnie Gibson and that they are therefore deemed to have been paid to and received by her. They must nevertheless constitute an “allowance” payable on a periodic basis for the maintenance of Bonnie Gibson in order to be deductible under paragraph 60(b). A payment cannot be an allowance under paragraph 60(b) unless the recipient has discretion as to the use of the money. Here of course no such discretion was present. I gather that the Appellant simply paid the mortgage and tax instalments to the organization entitled to receive such payments. Subsection 60.1(2) does not apply to deem the payments to have been made as an allowance payable on a periodic basis and therefore deductible under paragraph 60(b). Subsection 60.1(2) does not apply to expenditures on a “self-contained domestic establishment in which the taxpayer resides”. The payments under the first paragraph of the agreement are therefore not deductible.

For the foregoing reasons, the appeals from the assessments for the 1992 and 1993 taxation years will be dismissed. The appeal from the assessment for the 1994 taxation year will be allowed and the assessment referred back to the Minister of National Revenue for reassessment on the basis that the Appellant is entitled to deduct payments of $300 a month which he commenced to make in 1994 for the support of his daughter Jennifer Gibson. I gather that there is no issue as to how many such payments were made in the year.

Appeal allowed in part.