Margaret Marie Hedges v. Minister of National Revenue, [1974] CTC 2025, 74 DTC 1037

The Assistant Chairman:—This is the appeal of Margaret Marie Hedges from an income tax assessment in respect of the appellant’s 1970 taxation year.

On or about May 15, 1970 the appellant and her husband separated. A written separation agreement which was at the time in the process of preparation was completed and executed on June 15, 1970. Paragraph 17 of the separation agreement (Exhibit A-1) provides that the husband is to pay to the wife whom he appointed as trustee for the purpose an amount of $150 a month for the welfare and maintenance of the children of the marriage. It further stipulates that the wife alone is entitled to the exemption for the children provided for in paragraph 26(1 )(c) of the Income Tax Act.

The monthly payments made to the wife for the maintenance of the children in 1970 amounted to $1,200 which the appellant deducted from her taxable income for that year. The Minister disallowed the deduction and included the amount in the appellant’s 1970 taxable income pursuant to paragraph 6(1 )(d) of the Income Tax Act.

In support of the appeal from the Minister’s assessment, counsel for the appellant contends that the appellant by the written separation agreement was a legally constituted trustee and as such did not beneficially receive the amount of $1,200 in 1970, and therefore that the said amount was not taxable income in the appellant’s hands.

There is no doubt that the amount of $1,200 was not taxable income hands of the appellant within the meaning of section 5 of the Income Tax Act. Nevertheless the appellant received it by periodic amounts for the maintenance of the children of the marriage, pursuant to a written agreement, while the recipient was living apart from her husband and as such is taxable pursuant to paragraph 6(1)(d) of the Act.

In my view there is no justification for interpreting paragraph 6(1 )(d) as meaning an amount beneficially received by the taxpayer as counsel for the appellant contends. Whether the amount of $1,200 was received by the taxpayer as the mother who had the care of the children of the marriage or as a trustee with the same responsibility, the moneys were specifically received, not for the benefit of the recipient, but strictly for the maintenance of the children and paragraph 6(1 )(d) in stating that such an amount is taxable is clearly unconcerned as to whether the payments made for the maintenance of the children were of benefit to the recipient.

Moreover, the separation agreement stipulated that the wife alone was entitled to claim the exemption for the children pursuant to paragraph 26(1 )(c) of the Income Tax Act. It is the appellant, whether as wife or trustee, and not the husband who made the periodic payments for the maintenance of the children, who actually benefited from the said exemptions. Paragraph 6(1 )(d) is silent as to who can claim the statutory exemptions for the maintenance of the children of the marriage, yet it imposes a tax on amounts received for the maintenance of the children irrespective as to whether any benefit accrued to the recipient. It would seem to me to be quite irregular and contrary to the purport and intent of paragraph 6(1 )(d) to allow the appellant to claim the exemptions for the children for moneys which she did not pay, and not tax her for moneys which she received for the maintenance of the children under conditions which fall squarely within paragraph 6(1 )(d) of the Act.

Counsel for the appellant also contends that the appellant and her husband separated prior to the execution of the separation agreement, and were not therefore living apart pursuant to such agreement as required by paragraph 6(1 )(d). From evidence given, the separation agreement was in the process of being prepared at the time the appellant and her husband separated and was executed one month later.

I am satisfied from a realistic appreciation of the facts of this appeal that the appellant and her husband agreed to separate and that their separation and the maintenance payments were made in conformity with, and pursuant to, the agreement within the meaning of paragraph 6(1 )(d) of the Income Tax Act even though it may have been signed by them one month after the actual separation took place.

I hold therefore that the amount of $1,200 received by the appellant in 1970 was an allowance payable on a periodic basis for the maintenance of her children at a time when she was living apart from her husband pursuant to the terms of a written separation agreement and as such is taxable within the provisions of paragraph 6(1 )(d) of the Income Tax Act.

The appeal is therefore dismissed.

Appeal dismissed.