Chute v. R., [1999] 2 CTC 2864

Sarchuk T . C.J.:

These are appeals by Michael J. Chute (the Appellant) from assessments of tax with respect to his 1994, 1995 and 1996 taxation years by virtue of which the Minister of National Revenue (the Minister) disallowed a portion of certain deductions claimed for alimony or maintenance payments. The amounts in question total $2,800, $4,400 and $3,200 for the three years in issue, respectively.

The facts are not in dispute. Under an Interim Order issued in 1993 (the 1993 Order), the Queen’s Bench (Family Division) directed the Appellant to pay to his former spouse, Elizabeth Chute, among other amounts, a child support maintenance payment for their daughter Erin, in the amount of $400 per month commencing in July 1993, and that the said payments shall be made payable to Elizabeth Chute through the Enforcement Branch.

By virtue of a consent Interim Order issued on June 2, 1994 (the 1994 Order), the Queen’s Bench varied the 1993 Order and directed the Appellant to pay to Erin for her maintenance and support the amount of $400 per month commencing in April 1994, the said maintenance payments to be payable to her through the Enforcement Branch. [1]

The evidence also indicates that the 1994 Order came about as a result of discussions between the solicitors for the Appellant and his former spouse. In particular, it is evident that their agreement and consent to the 1994 Order was premised on the understanding that the Appellant’s former spouse would have to continue to include the amount paid to Erin in her income for tax purposes. [2]

It is the Respondent’s position that the Appellant is not entitled to deduct the amounts in issue pursuant to subsections 60(b) or 60(c) and 60.1(1) of the Income Tax Act (the Act) as the amounts in issue are not an allowance within the meaning of subsection 56(12) of the Act. More specifically, the position was advanced on the basis that the Appellant’s spouse, in these circumstances, did not have discretion as to the use of the amounts.

Useful reference can be made to the decision of Bowman, T.C.C.J. in Hak v. /?. [3] In that case, the Respondent also based the denial of the deduction upon a construction of subsection 60(b), section 60.1, and subsection 56(12) and upon what is contended to be the effect of a decision of the Federal Court of Appeal in Armstrong v. /?. [4] Although the facts are not on all fours with the present appeals, the analysis conducted by Bowman J. is applicable. In the course of his review, Bowman J. made reference to a decision of the Federal Court of Appeal in Arsenault v. Minister of National Revenue^ [5] as follows:

The headnote sets out the facts as follows:

Pursuant to a Separation Agreement dated June 26,1984, the taxpayer was require (sic), inter alia, to pay maintenance in the amounts of $400 per month to his separated spouse, S, and $100 per month for each of three children. Instead of making such payments, the taxpayer provided S with monthly cheques of $690 (later $760) made payable to the land-

10. The periodic payment of maintenance hereby ordered for support of the child, ERIN LOUISE CHUTE, shall be made in cash or by cheque or money order payable to ERIN LOUISE CHUTE and shall be sent to the Designated Officer, Enforcement Branch, Law Courts Building, 114 River Avenue W., Dauphin, Manitoba, R7N 0J7, pursuant to Part VI of the Family Maintenance Act.

lord, which S delivered to the latter. In assessing the taxpayer for 1991 and 1992 the Minister disallowed the deductions which the taxpayer had claimed in respect of these rental cheques. The taxpayer’s appeal to the Tax Court of Canada was allowed. The Tax Court Judge concluded that the amounts paid by the taxpayer were limited and predetermined, and that they represented a certain type of expense which S was thereby enabled to discharge. In addition, in the Tax Court Judge’s view, S had constructive receipt of the amounts involved, in that she had acquiesced in the taxpayer’s payment thereof to her landlord, thus constituting the landlord as her agent for the receipt and appropriate expenditure thereof. Hence, in the Tax Court Judge’s mind, all of the requirements of paragraph 60(b) and subsection 56(12) had been met, and this led him to the conclusion that the amounts in issue were deductible. The Minister applied to the Federal Court of Appeal for a judicial review of the Tax Court Judge’s findings.

The oral judgment of the majority (Strayer and MacGuigan JJ.A.) was delivered by Strayer J.A. as follows:

I am of the view that the applicant has not demonstrated any reviewable error on the part of the learned Tax Court Judge. I believe he was right in concluding that the payments in question came within paragraph 60(b) of the Income Tax Act as on the facts of this case the respondent’s former spouse retained a discretion as to how the money was paid pursuant to the separation agreement and judgment and thus as to the use of that amount.

Bowman J. also made reference to Armstrong v. R., and stated:

Three months later the issue of payments to third parties again came before the Federal Court of Appeal in Armstrong. The panel was Isaac C.J., Stone and Linden JJ.A. The judgment was delivered by Stone J.A. In that case, the taxpayer was ordered by the Saskatchewan Court to make the monthly mortgage payments on the matrimonial home in which his wife continued to reside. The Court in ordering the payment had not mentioned subsection 60.1(2). The Federal Court of Appeal held that the taxpayer could not rely on the deeming provision at the end of subsection 60.1(2) and further that subsection 60.1(1) could not be relied upon as the merits paid were not on “allowance” within subsection 56(12) because the spouse had no discretion as to the use of the mortgage payments.

I am of course bound by that decision to the extent that its ratio decidendi applies. It dealt with payments specifically contemplated by subsection 60.1(2) that would not otherwise fall within paragraph 60(b). Moreover, the order was made by the Court and left, apparently, the spouse with no discretion. Here we have payments that in my view, are covered by paragraph 60(b) and an agreement between the spouses that does no more than permit the appellant to fulfil in part his obligation to pay the periodic amount of $1,000 by paying certain bills that the wife would otherwise have to pay out of the $1,000 monthly allowance. In my view, this case is much more specifically covered by Arsenault. I cannot assume, in the absence of a clear indication to the contrary, that the Federal Court of Appeal in Armstrong intended to overrule its own decision of three months earlier in Arsenault. Indeed, this case is stronger than Arsenault. In Arsenault, the husband unilaterally presented his wife with cheques payable to third parties. In this case, the payments were made with the wife’s express consent.

As was the case in Hak, there is no dispute that had the Appellant paid his former spouse $400 per month and let her turn over these funds to the daughter/recipient no question would arise as to his entitlement to the deduction. In my view, although the 1994 Order does not use specific language indicating that the payments to Erin are being made on behalf of the spouse, that was unequivocally the intent and effect of the agreement and the subsequent Order. I am also satisfied that the payments in issue in the present appeal are covered by paragraph 60(b) in that the Appellant’s former spouse exercised her discretion as to how the money was to be paid by consenting to the 1994 Order. These payments to the daughter were made unquestionably with the wife’s express consent and with the approval of the Court.

The appeals are allowed and the assessments are referred back to the Minister for reconsideration and reassessment to allow the Appellant the deduction of the amounts in issue pursuant to paragraph 60(b) of the Income Tax Act.

Appeals allowed.