Leet v. R., [1999] 2 CTC 2477, 99 DTC 524

Beaubier T.C.J.:

This appeal pursuant to the General Procedure was heard at Halifax, Nova Scotia on January 26, 1999. The Appellant was the only witness.

In 1994 the Appellant deducted the payment to his former wife of $60,000 paid on May 1, 1994 pursuant to an order of the Supreme Court of Nova Scotia. His deduction was on the basis of paragraph 60(b) of the Income Tax Act which allowed the deduction of an amount paid under a court order or judgment payable on a periodic basis for the maintenance of the recipient.

The $60,000 payment by Mr. Leet to Mrs. Leet was the only payment for Mrs. Leet ordered by Boudreau, J. of the Supreme Court of Nova Scotia on March 31, 1994. The previous monthly payments were made pursuant to the spouses’ signed separation agreement. That agreement contained paragraph 4 which reads:

Spousal Support:

4. (a) Commencing on the 6 day of February, 1991 and continuing on the 6 day of each month thereafter, the Respondent shall pay to the Petitioner the sum of Two Thousand, Two Hundred and Fifty Dollars ($2,250.00) per month for the support of the Petitioner. This support shall cease absolutely in the event that the Petitioner remarries or enters into a common law relationship. For the purpose of this clause, a common law relationship shall be deemed to have been established if the Petitioner lives with a male adult for a period or periods totalling six (6) months or more.

(b) The Petitioner acknowledges that:

(i) she has an obligation to become economically self-sufficient and independent of the Respondent within a reasonable period of time and is obliged to diligently make all reasonable efforts in this regard by whatever means necessary;

(ii) that she has received an unequal division of the matrimonial assets in order to assist her in becoming economically self-sufficient and independent of the Respondent within a reasonable period of time. Accordingly, all costs incurred by the Petitioner in order to become economically self-sufficient and independent of the Respondent (including retraining costs and otherwise) shall be paid by the Petitioner out of the assets that she is receiving pursuant to this Agreement.

(c) The Respondent may, three years from the date of this Agreement, apply to a court of competent jurisdiction to have the issue of the Petitioner’s support and entitlement thereto, reviewed. Both parties agree that the court shall have the jurisdiction to review the issue of the Petitioner’s support regardless of whether there has been a change in the condition, means, needs or other circumstances of either spouse or of any child of the marriage. At the time of this review, the burden shall be on the Petitioner to establish to the court why her support shall not cease or shall continue at that time.

The reasons for Boudreau J’s decision given on March 31, 1994 respecting the $60,000 payment read as follows:

The question then is how can the objectives of the Divorce Act, particularly paragraphs (a), (b), (c) and (d) of ss. 7 of s. 17, best be achieved with regard to the spouses. In this regard, both spouses argue that a lump sum payment to Mrs. Leet in full and final settlement of Mr. Leet’s obligation for spousal maintenance is the best way to achieve the objective which they both indicate they desire, that is, to be free and independent of each other. I could not agree with them more. The evidence shows that the continued entanglement between the parties regarding spousal maintenance is a significant cause of Mrs. Leet’s present complaints. The present situation is intolerable for both of them.

In view of the particular facts of this case and the circumstances in which both spouses find themselves, I am satisfied a lump sum settlement is consistent with the interests of both parties and does not offend any principle laid down in the case ^Messier v. Delage. In my opinion, to do otherwise would be risky and require a good deal of unwarranted and unjustified speculation on the part of this court. In my opinion, the only question with regard to a final lump sum settlement of maintenance for Mrs. Leet is the amount. In the present circumstances and based on my view of the evidence, particularly from Mrs. Leet, I was tempted to terminate the maintenance for her absolutely after the April, 1994, payments. On the other hand, Mrs. Leet argues for a lump sum of $200,000, which, of course, would be tax free to her. This amounts to continued maintenance payments for her at the present level for a further period in excess of 10 years. In addition, she requests monthly maintenance of $5,500 for the child, Chelsea. There is no air of reality to either of these demands in the present circumstances. To do so would clearly be an attempt to do what was stated at page 416 of the Messier v. Delage case as being clearly inappropriate, and I quote:

That does not mean that the obligation of support between exspouses should continue indefinitely when the marriage bond is dissolved, or that one spouse can continue to be a drag on the other indefinitely or acquire a lifetime pension as a result of the marriage, or to luxuriate in idleness at the expense of the other, to use the expression one finds in some discussions on the subject.

In my view, what Mrs. Leet proposes is precisely that.

I have considered the needs of the parties, all of the evidence, and the representations of the parties, as well as the objectives of the Divorce Act, and, in particular, paragraph (a) of s. 17(7), which requires that I consider the economic advantages or disadvantages to the former spouses, that is, both of them, arising from the marriage or its breakdown. As well, I have considered the Minutes of Settlement, and, in particular, paragraphs 4(b) and 4(c). In all these considerations, it should be kept in mind that no single objective is paramount. In the present situation, I am convinced and I find that a final lump sum maintenance payment of $60,000 is the best way and, in this case, the only way to achieve the objectives of the Divorce Act and the agreement reached between the parties. This is equivalent to maintenance at the present levels for several more years. The monthly spousal maintenance will therefore cease upon payment of the April, 1994, maintenance, seeing as that month is already upon us. Mr. Leet shall pay a final lump sum maintenance payment to Mrs. Leet in the amount of $60,000 on or before May 1 of 1994.

With regard to maintenance for the child Chelsea, I have again considered Mr. Leet’s confirmed ability to pay as well as Chelsea’s reasonable needs, as I discussed previously in this decision. 1 am also aware that maintenance for Chelsea was set some time ago and that there have been some increases in that regard. I have also considered that both spouses have an obligation to contribute to Chelsea’s maintenance. In the circumstances, I find that a monthly contribution of $850 from Mr. Leet for Chelsea’s maintenance is reasonable. These payments shall commence on the 1 day of April, 1994, and shall continue on the first day of each month thereafter, so long as she is a child of the marriage, as defined in the Divorce Act. These payments shall be made to and through the Family Court for the Province of Nova Scotia at Halifax, Nova Scotia...

In Ambler v. R. (1993), 93 D.T.C. 1460 (T.C.C.) at 1463, Mogan, J.T.C.C. listed the criteria to be examined respecting the sum in question here. His statements were confirmed on appeal by the Federal Court of Appeal at (1995), 95 D.T.C. 5401 (Fed. C.A.). Mogan, J.T.C.C. stated:

In The Queen v. McKimmon, 90 D.T.C. 6088, the Federal Court of Appeal set out a number of criteria which are helpful in determining whether periodic payments passing between separated or former spouses are for the maintenance of the recipient or instalments of a capital sum. I will summarize those criteria because they apply directly to the issue herein.

1. The length of the periods at which the payments are made. The shorter the period (weekly or monthly) the more likely they will be maintenance.

2. The amount of the payments in relation to the income and living standards of both payer and recipient.

3. Whether the payments are to bear interest prior to due date. The obligation to pay interest would point to instalments of a capital sum.

4. Whether the amounts can be paid by anticipation at the option of the payer or accelerated as a penalty at the option of the recipient in the event of default.

5. Whether the payments allow a significant degree of capital accumulation by the recipient.

6. Whether the payments are stipulated to continue for an indefinite period or are for a fixed term. Amounts payable over a fixed term are more readily seen as being instalments of a capital sum.

7. Whether the payments can be assigned and whether the obligation to pay survives the lifetime of either the payer or recipient. 8. Whether the payments purport to release the payer from any future obligations to pay maintenance.

Using these criteria by reference number:

1. Only one payment was ordered by Boudreau J.

2. Boudreau J. did not make any reference to the income or living standards of the parties.

3. The payment was, practically speaking, to be made immediately.

4. No anticipation or penalty was referred to. The Appellant described the $60,000 as equivalent to a mortgage’s “balloon payment” in his argument. However, the separation agreement (Exhibit R-2) did not provide for a balloon payment and in his reasons for judgment Boudreau J. specifically ordered that “The monthly spousal maintenance will therefore cease upon payment of the April, 1994, maintenance.” Similarly, on page 12, Boudreau J. ordered Mr. Leet to pay “a monthly contribution of $850 ... for Chelsea’s maintenance.” In other words, the $850 per month was for maintenance, whereas Mrs. Leet’s “monthly spousal maintenance” ceased upon the April payment, thus terminating the periodicity described in the signed separation agreement.

5. In particular, subparagraph 4(c) of the Agreement, as quoted, placed the burden on Mrs. Leet to establish why her support shall not cease. “Support” was described in subparagraph 4(a) as $2,550 per month, and that did cease in April, 1994.

6. The $60,000 ordered was a one-time payment.

7. The $60,000 payment, on its face, would have survived Mrs. Leet’s death as an obligation to be paid.

8. Mr. Leet had no further obligation to pay maintenance to Mrs. Leet.

The payment was “a final lump sum maintenance payment to Mrs. Leet.” Moreover, the judge was specific in stating that the “monthly spousal maintenance” (that is, the periodic payments) “will therefore cease upon the payment of the April, 1994, maintenance” and that “the final lump sum maintenance payment” would be paid on May 1, 1994.

In this context, the single payment of $60,000 pursuant to the Court Order was not a periodic payment. It was an amount which released Mr. Leet from the liability imposed by the separation agreement’s periodic payments. It was, in the words of Minister of National Revenue v. Armstrong (1956), 56 D.T.C. 1044 (S.C.C.), in the nature of a capital payment.

For these reasons, the $60,000 is not deductible pursuant to the Income Tax Act.

The appeal is dismissed.

The Respondent is awarded party and party costs.

Appeal dismissed.