Marquette v. R., [1999] 4 CTC 2801

Tardif T.C.J.:

This is an appeal with respect to the 1992, 1993 and 1994 taxation years. The issue revolves around a portion of an amount deducted as alimony. The appellant claimed a deduction for alimony of $12,824.28 for 1992, $12,182.77 for 1993 and $4,534.44 for 1994.

The respondent issued a reassessment dated September 30, 1996, reducing the appellant’s deduction for alimony by $8,924 for 1992, $8,282 for 1993 and $2,884 for 1994.

The respondent alleged the following facts in support of her reassessment:

[TRANSLATION ]

(a) the appellant and France Mailhot (hereinafter “his former spouse”) separated pursuant to an interim consent dated November 12, 1991, that was ratified by the Court on November 12, 1991 (hereinafter “the consent”);

(b) the consent required the appellant to pay alimony of $75 a week for his former spouse and his children, which was to be payable in advance and indexed in accordance with the Act;

(c) the consent required the appellant to pay the taxes, mortgage and electricity for the matrimonial home:

(d) the Minister disallowed the appellant’s deduction of the expenses referred to in paragraph (c) above for the years at issue because it was not shown in the consent that the payments thereof would be deductible by the appellant under subsection 60.1 (2) of the Income Tax Act (hereinafter “the Act”) and taxable in the hands of the recipient, his former spouse, under subsection 56.1(2) of the Act.

Only the appellant testified. Using a number of documents, he explained how his case had proceeded. He filed, inter alia, a copy of a motion for interim relief (Exhibit A-5) on which the judgment of November 12, 1991, is written by hand. He also filed a copy of an agreement entered into on November 12, 1991, and signed by him and his former spouse in the presence of their respective counsel (Exhibit A-4).

The agreement was ratified as follows by the judgment of the Honourable Madam Justice Jeanne L. Warren (Exhibit A-6):

[TRANSLATION]

The Court ratifies and declares enforceable the consent of the parties signed on November 12, 1991, and orders the parties to comply therewith.

(s) Jeanne L. Warren J.S.C.

The appellant also filed a copy of a notarial act executed on November 6, 1990 (Exhibit A-2), by which he made a gift of an undivided half interest in the immovable used as the family home. The gift was subject to the following conditions:

[TRANSLATION]

Conditions:

This gift is so made on condition that the Donee fulfil the legal requirements and, in particular, on condition that she:

(A) pay, as of the date hereof, half of all general and special municipal and school taxes and assessments of any kind whatsoever that may af- feet the property as of the date hereof and a proportionate amount of the taxes for the current year as of the same date, and make all future payments of special assessments against the said immovable, which payments can be made over a number of years;

(B) take the said immovable in its current condition, declaring that she has seen and visited it and is satisfied with it;

(C) pay the costs and fees associated herewith and the registration fees and pay for the necessary copies;

(D) notwithstanding what is stated under “POSSESSION”, it is clearly understood that the parties cannot sell, convey or dispose of their rights in the said property without the consent of each party.

Characterizing the amounts at issue requires an analysis and assessment of the parties’ intention but also, above all, of the quality of the documentary evidence.

In the instant case, divorce proceedings were instituted by the appellant’s former spouse on November 6, 1991. Under the heading COROLLARY RELIEF, the alimony claims were expressed as follows (Exhibit A- l):

[TRANSLATION]

The applicant is requesting, for herself and the children, alimony of $100.00 a week in addition to the payment by the respondent of all expenses associated with the matrimonial home (mortgage, taxes, insurance, electricity).

Similar wording was used in setting out the relief sought (Exhibit A-1) in the divorce proceedings:

[TRANSLATION]

ORDER the respondent to pay the applicant alimony of $100.00 a week for her and the children, payable in advance on Friday of each week, and to pay the expenses associated with the matrimonial home (mortgage, taxes, insurance, electricity).

Concurrently with the proceedings seeking a divorce judgment, proceedings to obtain an order applicable in the interim were instituted through a motion for interim relief.

The alimony claims were again expressed and drafted in the same way. It seems to me to be important to note that the proceedings were all signed by the recipient of the amounts at issue. I believe it is important to point this out because court proceedings are very often signed only by counsel for the initiating party.

While the divorce proceedings and the interim proceedings were going forward, the appellant and his former spouse entered into an agreement, later ratified by the Superior Court, in which the financial issue was clearly expressed; it was set out as follows (Exhibit A-4):

[TRANSLATION]

6. The respondent shall pay, for the applicant and the children, alimony of $75 a week, payable in advance on Friday of each week and indexed in accordance with the Act.

7. The respondent shall pay the taxes, mortgage and electricity for the matrimonial home, as alimony. (Emphasis added.)

The real issue is whether the payment of the amounts resulting from the obligation set out in paragraph 7 of the agreement that became an integral part of the divorce judgment meets the requirements for deductibility. The parties submitted a number of decisions in support of their respective arguments.

In light of the testimonial and documentary evidence, it is my view that the recipient of the amounts at issue herself clearly expressed her intention that those amounts be sent directly to third parties who were clearly defined and identified; she thereby expressly waived her discretion as to the use of a portion of the amounts she was to receive pursuant to the divorce judgment.

Admittedly, the appellant said that the chosen method benefited him and protected him from potential recovery proceedings by the mortgagee. However, I consider it important to point out that the decision to direct the amounts to the third parties in question did not originate with the appellant, since that approach was first clearly set out in the proceedings that preceded the agreement. The fact that the alimony claim was worded as it was in the proceedings shows that this was the express intention of the eventual recipient. If that wording had been used for the first time in the agreement, there would have been reason to wonder whether the party obliged to pay the alimony could have been the one responsible for it, but that is not the case, since the initiative in that regard was obviously taken by the party to whom the alimony was owed.

Accordingly, I believe that the recipient herself decided and chose to limit her discretion as regards her alimony by clearly and expressly stating her intention as to the use of a significant portion of the financial support to which she was entitled.

Moreover, the intention of the parties to the agreement, which was fully incorporated into the divorce judgment, was clearly set out; they expressly described the financial support as being given “as alimony”.

For these reasons, the Court allows the appeal, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment.

Appeal allowed.