A. W. Prociuk, Q.C.:
1 The appellant appeals from the respondent's re-assessment of her income for the taxation years 1969, 1970 and 1971 wherein the amount of $1,200 was added to her income in each of the years under appeal, being the amounts paid by her separated husband, Louis Sprentz, at a rate of $100 per month directly to the Imperial Life Assurance Company, the mortgagee, on account of the mortgage registered against the matrimonial house in the name of both the appellant and her husband at the material time and occupied by the appellant and the six children of the marriage.
2 The appellant and her husband entered into a separation agreement on 31st August 1964, filed as Ex. A-1. Pursuant to the terms of the said agreement, the appellant got custody of the six children of the marriage, ranging in age from one to nine years old. The paragraphs of the said agreement pertinent to this appeal are:
2. Louis Sprentz shall pay to his wife, Irene Sprentz, the sum of Three Hundred ($300.00) Dollars per month for the maintenance of the said Irene Sprentz and for the maintenance and education of the said Debra Ann Sprentz, Sandra Sprentz, David Sprentz, Donald Sprentz, Margaret Sprentz and Diana Sprentz, with the said payment to be made on the first day of each and every month during the term hereof, with the first payment to be made on the first day of July, A.D. 1964.
3. The said Irene Sprentz shall have the right to possession of the property at 928 College Avenue in the City of Regina which said property is more particularly described as follows:
Lot Seventeen (17) and West 10 Feet of Lot Eighteen (18) Block Eighty-three (83), Plan No. DV 270 in Broder's Annex;
The said property being jointly owned by the said Irene Sprentz and Louis Sprentz as joint tenants and not as tenants in common.
4. The said Irene Sprentz shall pay the sum of Ninety ($90.00) Dollars per month to Imperial Life Assurance Company, the mortgage of the above described property, the first, payment to be made on the first day of July, A.D. 1964 and in addition the said Irene Sprentz shall be responsible for payment of all taxes on the said property after the first day of July, A.D. 1964 ...
7. The said Irene Sprentz shall have the custody of the said children, Debra Ann Sprentz, Sandra Sprentz, David Sprentz, Donald Sprentz, Margaret Sprentz and Diana Sprentz and shall out of the said allowance, Three Hundred ($300.00) Dollars, properly maintain and provide for the said children until they shall respectively attain the age of eighteen years and shall indemnify the said Louis Sprentz against all claims in respect of such children.
3 The appellant testified at the hearing of this appeal. She stated that her husband did make the $300 monthly payments to her at the start but gradually fell behind. He did not make any payments in some months and in others he remitted less than the stipulated amount. By the end of 1967 he was $2,300 behind. With six children to look after, her earning capacity was very limited and she was not earning enough to feed the children. When her husband paid her the full $300 per month, she was able to look after her children and make the mortgage payments. However, when he failed to make the payments or paid a portion of the agreed amount, she did not make the mortgage payments as she needed the money to feed the children. The husband moved to Toronto, Ontario, in 1966 and has remained in the east ever since, except for periodic trips to Regina to see the children. During one of these visits he told her that since she fell behind in mortgage payments he would take over the said payments and deduct the amounts so paid on account of the mortgage from the maintenance payments he was obligated to make to her pursuant to para. 2 of the said agreement. She states that she objected to this procedure but to no avail. The fact that his failure to discharge his obligations to her under the separation agreement made it difficult for her to meet her obligations did not impress him in any way. She further stated that he insisted that she report in her income tax return the full amount of $300 per month as having been received by her because she was in a much lower income tax bracket. For so doing, he promised to give her something extra, which apparently he did.
4 In filing her income tax return for the taxation year 1971, she declared the actual amount received, namely, $2,400, and requested the Department of National Revenue to adjust her prior years' returns on that basis as well. The department acceded to her request and re-assessed her accordingly for the years 1969, 1970 and 1971 and assessed the husband for an additional amount of $1,200 in each of the said taxation years. When the husband objected to his re-assessments, the appellant was re-assessed again by notices of re-assessment dated 14th December 1974, from which this appeal was instituted.
5 The appellant stated that her husband was more interested in preserving his equity in the house than in the welfare of the children. While she objected to his method of handling the payments, she was unable to take any other action to enforce her right under the separation agreement by reason of her financial circumstances, It was not until 1971 that she decided to make representations to the Department of National Revenue as stated earlier.
6 In his reply to notice of appeal, the respondent, in part, states as follows in para. 8:
The Appellant's husband objected to the reduction of the allowance being allowed to him as a deduction from his in come and these objections, based on more recent jurisprudence, were allowed. Re-assessments restoring the Appellant's income to the full amount received by her under the Agreements were then issued by the Respondent for the 1969, 1970 and 1971 taxation years.
7 Learned counsel for the respondent stated in his submission that the respondent's final re-assessments were based on the decision rendered by M. Boisvert, Q.C., in the appeal of Hastie v. Minister of National Revenue, 72 D.T.C. 1335, [1972] C.T.C. 2383, which decision was affirmed by Walsh J. of the Trial Division of the Federal Court in18 R.F.L. 83, [1974] 1 F.C. 117, 74 D.T.C. 6114, [1974] C.T.C. 131. In that case the husband was complying with a court order which, inter alia, specifically stated that he pay a certain sum monthly to his wife on account of mortgage payments. His wife had no objection to the payments being made directly to the mortgagee.
8 In the instant case, the husband had executed a separation agreement and obligated himself to pay the appellant the sum of $300 per month for her and the children's maintenance. It was the appellant's, and not his, responsibility to make the mortgage payments. The agreement spells not in some detail how she was to use the said sum—see paras. 2 and 7 of Ex. A-1. The agreement does not direct the appellant to use any portion of the said $300 for mortgage payments. The evidence is uncontradicted that when the husband failed to make a payment, or made a smaller payment, the appellant was unable to buy food for the children and herself and also make the mortgage payments from the amount she then received from him plus the amount she was able to earn at the time. When he paid the full amount due, she was able to carry out her part of the agreement.
9 The parties are now divorced. The appellant obtained title to the house by paying her ex-husband $2,500 for his equity in the property, which sum she raised by borrowing from Sherwood Credit Union Ltd. and securing the loan by a second mortgage on the said property. She now works as a mail clerk and as a part-time waitress. She also receives $300 per month from her ex-husband as alimony and maintenance, pursuant to the court decree.
10 Mr. N. Zbitnew submitted on behalf of the appellant that the husband was in breach of the agreement when he uninlaterally chose to vary the payments without any reference to the wishes of the appellant. As to the argument by the respondent that payments made by the husband directly to the mortgage company were for the benefit of the appellant, he pointed out that “there was no provision in the agreement for him to do so and that the benefit accrued to him which he realized when he sold his equity in the property”.
11 The appellant was re-assessed on the basis of the provisions of the Income Tax Act, R.S.C. 1952, c. 148, s. 6(d) [re-en. 1956–57, c. 29, s. 2(1); now 1970–71–72 (Can.), c. 63, s. 56(1)(b)], as it was then in force, and which read as follows:
6. Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year ...
(d) an amount received by the taxpayer in the year, pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written agreement, as alimony or other allowance payable on a periodic basis for the maintenance of the recipient thereof, children of the marriage, or both the recipient and children of the marriage, if the recipient was living apart from, and was separated pursuant to a divorce, judicial separation or written separation agreement from, the spouse or former spouse required to make the payment at the time the payment was received and throughout the remainder of the year.
12 It is abundantly clear that in each of the years under appeal the appellant only received $2,400 from her husband pursuant to the written agreement, Ex. A-1. The facts in this case as outlined above are distinguishable from those in the Hastie case, supra, to the extent that the liberal interpretation of alimony and maintenance payments so ably enunciated therein cannot, in my humble opinion, be applied here. To do otherwise would be tantamount to opening the door to any party to a written separation agreement to vary the terms thereof unilaterally with impunity.
13 In the result I am satisfied that the appellant has discharged the onus the Act places on her and is entitled to succeed.
14 Acccordingly, the appeal is allowed.
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