Boucher v. R., [1998] 3 CTC 3014

Tremblay T.C.J.:

This appeal was heard at Chicoutimi, Quebec, on August 20, 1997 pursuant to the informal procedure.

1. Point at issue

According to the Notice of Appeal and the Reply to the Notice of Appeal the question is whether the appellant has the right, in computing his income for the 1992, 1993 and 1994 taxation years, to deduct $3,333, $3,333 and $4,360 respectively as alimony.

These were arrears owing on an alimony. The cheques which were given in payment were all cashed by the Minister of Finance of Quebec for the Ministère de la Sécurité du revenu to reimburse himself for money paid to the appellant’s spouse, as the appellant had not paid her the alimony he should have paid.

The Minister disallowed the deduction, alleging that the appellant had subrogated his rights.

The appellant argued that the subrogation of the debt within the meaning of art. 1651 of the Civil Code of Quebec should be regarded as deductible for tax purposes.

2. Notice of appeal

The Notice of Appeal reads as follows, beginning with Paragraph 4:

[TRANSLATION]

4. The appellant is appealing from this decision lo the TAX COURT OF CANADA for the following reasons:

4.01 the new notices of assessment, already filed as Exhibit A-l, are wrong in fact and in law in view of all the particular facts of this case and the law applicable in the circumstances and, without limiting the generality of the foregoing, especially in view of the following:

4.02 accordingly, on or about February 20, 1995, in an application to cancel alimony arrears and to reduce an alimony, a written agreement was made between the Attorney General of Quebec, acting as intervener, Liliane Girard, acting as respondent, and Alain Boucher, acting as applicant;

4.3 on February 28, 1995 the Honourable J. Roger Banford, a judge of the Superior Court of Chicoutimi, approved this agreement and made it executory, as appears from a copy of that judgment and the agreement filed in support hereof as Exhibit A-4;

4.4 in paragraph I of the said agreement it is stated:

The intervener liquidates the alimony arrears owed to date in the amount of $10,000, which the defendant will pay him by March 31, 1995 at the latest;

4.5 in accordance with the said agreement, the taxpayer paid the representative of the Attorney General of Quebec the sum of $10,000 directly, the said sum being the alimony arrears payable in this regard, as appears from a copy of a cheque given to the representative of the Attorney General of Quebec and filed in support hereof as Exhibit A-5; [in fact, the amount of $11,026.99 was paid: it was agreed that wherever “$10,000” appeared in the notice of appeal it should read “$11,026.99” (see Exhibit A-7, described in paragraph 4.01 of these reasons)]

[Note added.]

4.6 this amount must be regarded as deductible for tax purposes since it was paid as alimony arrears;

4.7 the payment of this amount of $10,000 is a subrogation of debt within the meaning of arts. 1651 et seg. of the Civil Code of Quebec, and should be regarded as deductible by the payer taxpayer for tax purposes;

4.8 the subrogation does not have the effect of transforming the debt or altering it: it therefore cannot have any new legal consequences and retains the form and characteristics of a payment of money as an alimony;

4.9 further, the decision in Bishop (90-3848(IT)) by the Honourable W. Kempo, a judge of the Tax Court of Canada, cannot be applied in Quebec law since subrogation under the Family Benefits Act as applied at the provincial level by the Ontario Minister of Community and Social Services is a subrogation by agreement, whereas subrogation under the Act respecting income security of the province of Quebec is a subrogation by operation of law, as will be shown at the hearing, and as appears from a copy of that decision filed in support hereof as Exihibit A-6;

4.10 further, the representative of the Attorney General of Quebec, intervening in this matter, confirmed that the money so paid would be deductible in the same way as an alimony;

4.11 but for this confirmation obtained from the representative of the Attorney General of Quebec, the taxpayer and his counsel would never have agreed to pay the sum of $10,000 directly;

4.12 in view of the foregoing, and all the particulars of this matter, the moneys paid totalling $10,000 must be regarded as deductible for tax purposes;

FOR THESE REASONS, MAY IT PLEASE THE COURT:

TO ALLOW THIS APPEAL;

TO VACATE the notices of reassessment claimed by Revenue Canada from the appellant for 1992, 1993 and 1994, filed in support hereof as Exhibit A-2;

TO FIND that the appellant may deduct the sum of $10,000 paid as an alimony in payments of $3,300, $3,333 and $4,360 for 1992, 1993 and 1994.

Chicoutimi, June 25, 1996

signed) Truchon Girard

TRUCHON GIRARD, Attorneys

(Martin Hudon, Attorney)

Counsel for the appellant

signed) Alain Boucher

ALAIN BOUCHER

3. Reply to Notice of Appeal

3.01 Burden of proof

3.01.1 The appellant has the burden of showing that the respondent’s assessments are incorrect. This burden of proof results from several judicial decisions, including a judgment of the Supreme Court of Canada Johnston v. Minister of National Revenue, [1948] S.C.R. 486, 3 D.T.C. 1182, [1948] C.T.C. 195 (S.C.C.).

3.02 In the same judgment, the Court held that the facts assumed by the respondent in support of the assessment or reassessment are also deemed to be true until proven otherwise. In the instant case the facts assumed by the respondent are set out in subparagraphs (a) to (g) of paragraph 8 of the Reply to the Notice of Appeal. The paragraph reads as follows:

[TRANSLATION]

8. In making the reassessments of October 30, 1995 for the 1992, 1993 and 1994 taxation years, the Minister relied inter alia on the following assumptions of fact:

(a) the appellant was divorced during the 1992, 1993 and 1994 taxation years; [admitted]

(b) on February 20, 1995 the Superior Court granted the appellant’s application to cancel alimony arrears and reduce an alimony and made the agreement signed by the parties executory; [admitted]

(c) the appellant agreed to pay his ex-wife the sum of $10,000 to liquidate the alimony arrears owed to date, and payable by March 31, 1995 at the latest; [admitted]

(d) the appellant further agreed to pay his ex-wife $57 a week retroactive to January 1, 1995 so long as she was receiving unemployment insurance; [admitted]

(e) the appellant made the payment of $10,000 to the Ministère de la Sécurité du revenu of the Government of Quebec; [admitted]

(f) the Minister concluded that the appellant had subrogated his rights; [not known]

(g) the Minister accordingly disallowed the alimony deductions of $3,333, $3,333 and $4,360 for the 1992, 1993 and 1994 taxation years respectively ... [admission that deductions disallowed, but not validly]

4. Facts in evidence

4.01 The facts were not in dispute. No witnesses were called.

With the agreement of counsel for the respondent, counsel for the appellant filed Exhibits A-l to A-7, described as follows:

Exhibit A-1:

Copy of Revenue Canada notices of assessment;

Exhibit A-2:

Copy of amended objection submitted to Revenue Canada;

Exhibit A-3:

Revenue Canada decision on amended objection as submitted;

Exhibit A-4:

Copy of judgment [February 28, 1995] and agreement [February 20, 1995] from the Superior Court, Family Division;

Exhibit A-5:

Copy of cheque given to representative of Attorney General of Quebec [in the amount of $10,000];

Exhibit A-6:

Copy of judgment 90-3848(IT) [Carol Bishop]

Exhibit A-7:

Series of nine cheques for $114.11 paid by the appellant from November 25 to December 30, 1994, that is, $1,026.99, six of which were to the order of Liliane Girard and three to the order of the Ministère des Finances of Quebec.

[$10,000 + $1,026.99 = $11,026.99.]

5. Act - case law and authorities - analysis

5.01 Act

The principal provisions of the Act applicable to the instant case are ss. 56(12), 60.1(1), (2) and (3) and 248(1), as well as 60(fe), (c) and (c./) of the Income Tax Act.

5.02 Case law and authorities

The case law and authorities cited by the parties are the following: 1. Bishop v. Minister of National Revenue, 90-3848(IT), ( 1993), 93 D.T.C. 333 (T.C.C.);

2. Anderson v. Minister of National Revenue (1988), 88 D.T.C. 1198 (T.C.C.);

3. BAUDOUIN, Jean-Louis, Les Obligations, 4th ed., 1993, Les Éditions Yvon Blais Inc., Chapter II, “La subrogation”, pp. 523-537;

4. BAUDOUIN RENAUD, Code civil du Québec annoté, 1995, Wilson & Lafleur (Des obligations), arts. 1652-1656;

5. Act respecting income security, c. S-3.1.1, s. 39;

6. TANCELIN, Maurice, Des obligations (Les techniques d'exécution et d’extinction), Wilson & Lafleur (II. Effets de la subrogation personnelle), paras. 900-901.

The Court also reviewed Gervais c. R. (August 26, 1997), Doc. 96- 1237(IT)I (T.C.C.), a decision rendered by Judge P. Archambault of this Court, who himself referred to Pepper v. Minister of National Revenue, [1997] 1 C.T.C. 2716 (T.C.C.)

5.03 Analysis

5.03.1 Appellant’s argument

5.03.1(a) The appellant maintained that the respondent relied on Bishop (5.02(1)).

The issue in Bishop may be summarized as follows:

[TRANSLATION]

...whether the whole or any part of the $8,994.00 paid by William Bishop to the Treasurer of Ontario in the 1988 taxation year is an amount which is deemed by subsections 56.1(1) and 60.1(1) of the Income Tax Act to have been paid to and received by Carol Bishop in 1988 for the purposes of paragraphs 56(1 )(b), 56(1 )(c) and 56(1 )(c. 1), and paragraphs 60(b), 60(c) and 60(c.1), and is therefore deductible by William Bishop in computing his income for the 1988 taxation year and is to be included by Carol Bishop in computing her income for the 1988 taxation year.

The decision was that Carol Bishop did not have to include the said sum in her income as she had not actually received the payment and had not profited indirectly from it. Furthermore, mere physical possession of this money did not confer ownership of it on her in law or in fact. She also did not have the capacity to act in the creditor-debtor relationship existing between the department and Mr. Bishop at the time of the payment. The payment was actually made to settle the debt which Mr. Bishop had to the Department pursuant to the decree nisi, not a judgment pursuant to s. 60(b) of the Act.

As the payment was not made pursuant to s. 60(1)) or (c) of the Act, Mr. Bishop could not deduct it in accordance with s. 60.1(1) of the Act.

5.03.1(b) First, the amount paid should be regarded as deductible for tax purposes since it was paid as alimony arrears.

The payment of this amount was a subrogation of debt within the meaning of arts. 1651 et seq. of the Civil Code of Quebec and should be regarded as deductible for tax purposes by the payer taxpayer. The appellant referred to Jean-Louis Baudouin, Les obligations, 4th ed., Chapter II, “La subrogation”, paragraph 952 — Permanence du lien d’obligation. That paragraph reads as follows:

[TRANSLATION]

D. Effects with respect to third parties

952 — Continuance of obligation — Subrogation does not have the effect of transforming or changing the debt, either as to the principal or the accessories of the debt. It therefore cannot have new legal effects in respect of third parties. They are in the same legal position as they would have been in if the original creditor had remained the creditor of the debt.

5.03.1(c) The appellant alleged that in Bishop it was Ontario law which applied.

As a result of the non-payment of the alimony by her husband, Mrs. Bishop obtained welfare benefits from the government of that province pursuant to the Family Benefits Act.

Under that Act, subrogation in rights is by agreement. Mrs. Bishop had to sign a deed of assignment to the Government of Ontario.

5.03.1(d) In the instant case, the subrogation is by operation of law. Article 1652 of the Civil Code of Quebec provides that “Subrogation may be conventional or legal”. Article 1656 provides that subrogation takes place by operation of law, inter alia in the case of the Act respecting income security, as appears in the Code civil du Québec annoté (Baudouin Renaud) (5.02(4)).

Section 39 of that Act reads as follows:

39. Where the claim of a person is a support payment determined by judgment, the Minister is subrogated by operation of law in the rights of the creditor for all payments of support which are due at the time the person or his family becomes eligible for benefits and for all payments which will become due during the period for which the benefits were granted.

Accordingly, in the appellant’s submission Bishop cannot apply to the instant case.

5.03.1(e) Finally, the appellant argued alternatively that the representative of the Attorney General of Quebec, intervening in the matter, had confirmed that the money paid was deductible to the same extent as an alimony.

5.03.2 Respondent’s argument

5.03.2(a) According to counsel for the respondent, whether the subrogation is by operation of law or by agreement its effects are identical.

She referred to the text by Maurice Tancelin (5.02(6)), p. 50, paras. 900- 901:

[TRANSLATION]

II. Effects of Personal Subrogation

900. Unity of effects — Whether subrogation is by agreement or by operation of law, its effects are identical: it confers on the solvens (supra, No. 800) the rights of the paid creditor up to the amount of the payment made. [My emphasis]

$1. Transfer of rights of paid creditor to subrogated solvens

900.1. Identity of right transferred — The subrogated party “enters into the rights and actions” of the paid creditor, according to the expression used by Aubry and Rau. The debt itself is transferred to him or her, with accessories if any, namely guarantees, the transfer of which also requires compliance with the rules of publication.

901. Analogy with assignment of debt — The debt is transferred with no other change than the name of its holder. There is no novation by a change of object (infra, No. 952). This feature was noted in the old case law, which considered that there was such an analogy with the assignment of a debt that they often confused the two. The analogy is obvious.

5.03.2(b) Counsel for the respondent cited Bishop.

Before taking its analysis any further, the Court should point out that in the instant case the amount of $10,000 is what was paid late (as in Bishop). However, as is mentioned in the agreement forming part of the Quebec Superior Court judgment (Exhibit A-4), [TRANSLATION] “since November 2, 1994 the defendant [Alain Boucher] has again begun paying the plaintiff an alimony of $114.11”. Also, s. 60 of the Act cited below at the start of the Gervais analysis is for 1994 but it underwent no changes in 1995, the year concerned in the instant case, Alain Boucher.

5.04 Denis Gervais and Chris Pepper

In those cases the issues were similar to the instant case. Neither the appellant nor the respondent referred the Court to those cases. The respondent was undoubtedly unaware of them!

In Gervais Judge Archambault of this Court analysed various aspects of the problem at length, including subrogation and Bishop. He cited Pepper in a footnote.

It is necessary to cite the reasons in Gervais at length. The late payments in Gervais and in the instant case, Alain Boucher, were made in 1994.

[OFFICIAL ENGLISH TRANSLATION]

96-1237(IT)I

BETWEEN: DENIS GERVAIS, Appellant, and HER MAJESTY THE QUEEN, Respondent

Reasons for Judgment

Archambault, J.T.C.C.

Under the informal procedure rules, Denis Gervais is challenging a notice of reassessment issued on September 16, 1996, by the Minister of National Revenue (“the Minister”) for the 1994 taxation year. That notice was issued after the filing with this Court on April 15, 1996, of a notice of appeal from a notice of assessment dated June 8, 1995, for the same taxation year. The notice of appeal was amended in accordance with paragraph 165(7)(b) of the Income Tax Act (“the Act’). The Minister disallowed the deduction of $6,119.28 in support payments payable by Mr. Gervais to his daughter’s mother. That amount was paid to the Minister of Manpower, Income Security and Vocational Training (“the Minister of Income Security”). The facts relevant to this appeal are as follows.

Facts

Mr. Gervais and Jacinthe Mercier lived together and had a child, Marianne Gervais Mercier, on December 31, 1990. Mr. Gervais and Ms. Mercier were never married. On January 29, 1993, Mr. Justice Georges Savoie of the Superior Court of Quebec rendered a judgment (“the judgment”) ordering Mr. Gervais to pay Ms. Mercier $60 a week in child support, to be paid at the office of the Ministry of Income Security in Sherbrooke until Ms. Mercier found employment.

Since Mr. Gervais did not have to appear before the Superior Court of Quebec, he was not automatically sent a copy of the judgment. More than a year after noting that no request for support payments had been made of him, he asked the Court for a copy of the judgment. On April 6, 1994, Mr. Gervais informed the Ministry of Income Security of the circumstances surrounding his non-payment of support until that time.

After discussing the matter with a representative of that Ministry, Mr. Gervais paid the arrears of the support payments he had to make under the judgment over three months and gave the department monthly cheques for $244,56 for the rest of 1994. The cheques were made payable to the Minister of Income Security, not to Ms. Mercier. When Mr. Gervais was asked about this by counsel for the respondent, he answered that he had done so at the request of the Ministry’s representative.

No evidence was adduced about any assignment of a claim by Ms. Mercier to the Minister of Income Security. In a letter dated February 15, 1995, the head of the Ministry of Income Security’s Service des opérations du recouvrement (services of collecting operations) confirmed that [TRANSLATION] “the amount [$6,119,28] we have received as support payments ... was paid for the benefit of Jacinthe Mercier for the 1994 taxation year” J [1]

Minister’s Position

In making the assessment, the Minister considered, inter alia, that: (a) Mr. Gervais had submitted a letter from the Ministry of Income Security stating that he had made support payments in the amount of $6,119.28 for the benefit of Jacinthe Mercier in 1994; (b) the welfare authorities had paid Ms. Mercier an equivalent amount; (c) since the $6,119.28 had been paid directly to the Ministry of Income Security, subrogation had occurred and Mr. Gervais was therefore not entitled to the deduction for support payments or other allowances for the 1994 taxation year.

Analysis

The relevant provision applicable to the case at bar is paragraph 60(c) of the Act, which read as follows in 1994:

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

(c) an amount paid by the taxpayer in the year as an allowance payable on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and the children, if

(i) at the time the amount was paid and throughout the remainder of the year the taxpayer was living separate and apart from the recipient,

(ii) the taxpayer is the natural parent of a child of the recipient, and

(iii) the amount was received under an order made by a competent tribunal in accordance with the laws of a province;

A careful reading of paragraph 60(c) of the Act shows that it does not require that the support be paid to the recipient personally. It requires only the following: (i) that the amount paid be an allowance payable on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and the children; (ti) that at the time the amount is paid and throughout the remainder of the year, the taxpayer be living separate and apart from the recipient; (iii) that the taxpayer be the natural parent of the recipient’s child; and (iv) that the amount be received under an order made by a competent tribunal in accordance with the laws of a province.

Counsel for the Minister admitted that the second and third conditions are not in issue in this appeal. He also did not contest the fact that the amount covered by the decision was an allowance payable on a periodic basis for the maintenance of Mr. Gervais’ daughter.

However, counsel for the Minister argued that Mr. Gervais is not entitled to the deduction because of the subrogation in favour of the Minister of Income Security. The Minister is essentially relying on this Court’s decision in Bishop v. M.N.R., File No. 90-3848(IT), dated February 12, 1993, 93 DTC 333, which was rendered under the former rules of procedure. In that case, Mrs. Bishop, in whose favour a support order had been made, had assigned her right to support payments to the Minister of Community and Social Services of Ontario for value.

At page 15 of her reasons, the judge found that Mr. Bishop’s payment “was made to discharge Mr. Bishop’s indebtedness to the Ministry which arose in consequence of the Decree Nisi rather than pursuant to it within the meaning of paragraph 60 (b) of the Act’.

I do not believe that the reasoning used in Bishop applies to the facts of this appeal. To begin with, in this case, unlike in Bishop, Ms. Mercier did not assign her claim to the Minister of Income Security for value. In addition, Bishop arose in a province where the legal system of social assistance seems somewhat different from that which exists in Quebec.^ [2]

The most relevant provisions of the Act respecting income security, S.Q. 1988, c. 51, should now be considered. Section 30 of that Act requires social assis- tance recipients to take whatever action is necessary to obtain support payments.In [3] addition, the support payments received by a person are taken into account in establishing the benefits to which he or she is entitled, and the person may have to reimburse the amount of benefits received up to the value of the right to support.^ [4] In this case, Ms. Mercier obtained a judgment to this effect from the Superior Court. However, the Minister of Income Security was subrogated by operation of law in the rights of the creditor of support for all payments due at the time the creditor became eligible for benefits. Section 39 of that Act provides:

39. Where the claim of a person is a support payment determined by judgment, the Minister is subrogated by operation of law in the rights of the creditor for all payments of support which are due at the time the person or his family becomes eligible for benefits and for all payments which will become, due during the period for which the benefits were granted.

The Minister shall give the creditor the amount by which the sums collected exceed the amount recoverable under section 35.

As found by the Commission des affaires sociales in Aide sociale-82, [1983] C.A.S. 703, with respect to a similar section, this section subrogates the Minister of Income Security not in the right to support, but rather in the right to enforce the claim for support. In Aide sociale-29, [1992] C.A.S. 461, the Commission stated that the Minister of Income Security cannot rely on legal subrogation unless he proves that he paid an amount to the creditor of support.

Jean-Louis Beaudoin defines subrogation as follows in Les Obligations, 3rd edition, Les Editions Yvon Blais Inc., Cowansville, 1989, no. 644, at p. 384:

[TRANSLATION]

644 - Definition - Subrogation is the legal process by which the creditor's claim, with all its accessories, is transferred to the solvens legally or conventionally. From the creditor’s standpoint, payment with subrogation can be seen as an outright payment, since it has the effect of extinguishing the debt as far as the creditor is concerned. From the debtor’s standpoint, there is a substitution of persons, since the subrogated solvens takes the place of the original creditor. Subrogation has a significant practical advantage, since the creditor receives what he is owed and the solvens acquires not only the claim, but all guarantees, security interests and accessories associated therewith.

[Footnote omitted. I

He goes on describing the difference between subrogation and novation as follows:

[TRANSLATION]

645 - Differences from novation - ... However, it differs from novation by change of creditor in that novation involves two processes: the extinction of a debt and the creation of a new one. Subrogation, on the other hand, merely changes the creditor-debtor relationship, without affecting the debt itself. Thus, while with subrogation the claim by definition keeps all its accessories, the opposite occurs in the case of novation, where the accessories disappear unless expressly reserved.

[Footnote omitted and emphasis added.]

Subrogation also differs from the assignment of a claim:

[TRANSLATION]

646 - Differences from the assignment of a claim - As noted by one writer, comparing subrogation with the assignment of a claim is like comparing a part with a whole, that is, a method of obtaining performance of an obligation with a contract.... The assignee can thus claim the entire debt, even if lie acquired it for a lower amount. Subrogation, on the other hand, is a reimbursement mechanism and a mere incident of payment. It is not speculative in nature, and the person subrogated can claim from the debtor only what he paid on the debtor’s behalf, and nothing more.

[Footnote omitted and emphasis added. I

The last paragraph of section 39, cited above, requires the Minister of Income Security to give the creditor the amount by which the sums collected exceed the amount recoverable. This confirms that there is no assignment of a claim under this Quebec legislation as there is under the Ontario legislation, as noted in Bishop.

The scope of this legal transaction can be better understood by considering its effects. Between the debtor and the subrogating creditor, payment with subroga- tion extinguishes the obligation outright.^ Beaudoin describes the effects between the subrogated solvens and the debtor as follows:

[TRANSLATION]

667 - Transfer of relationship of obligation - ... The former relationship of obligation that existed between the subrogating creditor and the debtor is exactly the same as the new relationship of obligation formed between the subrogated solvens and the debtor. Accordingly, the claim of the person subrogated is worth only what the claim of the subrogating creditor was worth. The person subrogated cannot have more rights than the subrogating creditor or unlike where a claim is assigned, recover more from the debtor than what he actually paid the creditor. In addition, the debtor can raise the same defences and exceptions against the person subrogated as he could have raised against the subrogating creditor, including the nullity of the transaction that created the debt.

[Footnotes omitted and emphasis added.]

He adds the following about its effects as far as third parties are concerned:

[TRANSLATION]

669 - Permanence of the relationship of obligation - Subrogation does not have the effect of transforming or changing the claim, either with respect to the principal or with respect to the accessories of the debt. It therefore cannot have new legal effects in respect of third parties. They are in the same legal position they would have been in if the original creditor had remained the creditor of the debt.

[Emphasis added.]

In the case at bar, what was the effect of the payment of the Minister of Income Security with subrogation? By paying Ms. Mercier $6,119.28, the Minister of Income Security was merely paying the support to which she was entitled under the judgment, and Ms. Mercier was the one who used the money. It might be said that the Minister of Income Security was simply acting as a collection agent for the support payments for Ms. Mercier’s benefit. This is in fact what the head of the Service des operations du recouvrement confirmed: he had received $6,119.28 from Mr. Gervais “as support payments ... for the benefit of Jacinthe Mercier”.

As the subrogated solvens, the Minister of Income Security was entitled to require Mr. Gervais to reimburse what the Minister had paid out and to pay what Mr. Gervais was required to pay under the judgment. In my view, the fact that Mr. Gervais paid $6,119.28 to the Minister of Income Security rather than Ms. Mercier does not change the nature of the amount he had to pay. The legal source of Mr. Gervais’ obligation was the Superior Court’s order that he pay Ms. Mercier support for her daughter. There was no novation in this case.

The situation can be compared to that of a banker who pays the rent owed by the banker’s customer, a tenant, to the tenant’s landlord with subrogation. I believe that it would not be appropriate to conclude that the payment of the amount by a third party means that it is no longer “rent” that the landlord must include in his or her income. Likewise, it would not be appropriate to disallow the deduction of the rent payments made by the tenant to the banker if the tenant incurred the expense to earn income from a business or property.

I therefore consider that the amount paid by Mr. Gervais to the Minister of Income Security was an allowance payable on a periodic basis for the maintenance of his child and that it was received under an order made by a competent tribunal.

According to article 647 of the Civil Code of Quebec, which came into force in 1993, the father and mother must maintain their children. Accordingly, the Superior Court’s order was made in accordance with the laws of Quebec. Since all of the conditions set out in paragraph 60(c) of the Act have been met, Mr. Gervais is entitled to deduct the amount of $6,119.28 he paid in 1994.

For these reasons, Mr. Gervais’ appeal is allowed with costs and the Minister’s assessment dated September 16, 1996, is referred back to the Minister for reconsideration and reassessment on the basis that Mr. Gervais was entitled to deduct $6,119 28 in support payments in computing his income for the 1994 taxation year.

Pierre Archambault

J.T.C.C.

Signed at Ottawa, Canada, this 26th day of August 1997.

5.05 I also cite the following paragraph from Pepper: it followed the paragraph cited above by Judge Archambault in Gervais:

Also, I do not believe that subsection 60.1(1) has any application to the present matter as I am of the view that this subsection applies, where, for instance, the Order itself providing for support payments directs that such payments be made to a third party. In such cases, the payments to another person described in this subsection is deemed to be a payment to the spouse or ex-spouse of the payor, as the case may be.

5.06 I concur in the opinion of Judges Archambault and Garon and find in favour of the appellant. Both the amounts paid to the Minister as a result of the legal subrogation and of course those paid directly to his ex-wife are eligible as deductions.

6. Conclusion

For the foregoing reasons the appeal is allowed with costs and the assessments referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the appellant in computing his in- come for 1992, 1993 and 1994 is entitled to deduct the sums of $3,333, $3,333 and $4,360 respectively as an alimony.

Appeal allowed.