Sadler v. R., [1997] 3 C.T.C. 2698

Bell T.C.J.:

1 All statutory references, unless otherwise specified, relate to the Income Tax Act (“Act”).

Issue:

2 The issue is whether, in the 1992 taxation year, payments made by the Appellant pursuant to an Order of the Court of Queen's Bench of Alberta are deductible pursuant to paragraph 60.1(1)(b) and/or paragraph 60(b) of the Act.

Facts:

3 The Appellant was divorced from and lived separate and apart at all relevant times from his ex-spouse, Donna Sadler (“Donna”). The foregoing consent Order reads in part, as follows:

The Petitioner shall pay to the Respondent, as support for the children of the marriage, the sum of $750.00 per month, per child, for a total of $1,500.00 per month, until each child shall become self-supporting, marry, cease to reside with the Respondent (the child will not be deemed to have ceased to reside with the Respondent merely because he or she has taken a vacation or is in attendance at a post-secondary educational institution), or attains the age of eighteen years, whichever shall first occur, provided that, in the event a child attends a post-secondary educational institution beyond the age of eighteen years, the Petitioner shall continue to pay the aforesaid payments directly to the child while the child continues his or her post-secondary education until the child reaches the age of twenty-two.

4 The Appellant's daughter testified that she and her brother, after having reached the age of eighteen years, lived with their mother, Donna, in 1992. She said that each of them received monthly support payments of $800 from their father. She also said that in that year they were both going to university, that their parents paid the tuition, that they had meals at home, helped with household chores and were required to observe “basic courtesy”, calling their mother if arriving home late and making arrangements with their mother for guests staying at her house. Both children lived with their mother until the spring and summer of 1994. She also testified that she and her brother each paid $300 per month to their mother.

5 In essence, no facts were in dispute.

Analysis and Conclusion:

6 Paragraph 60.1(1)(b) of the Act reads as follows,

Where, after May 6, 1974, a decree, order, judgment or written agreement described in paragraph 60(b), (c) or (c.1), or any variation thereof, has been made providing for the periodic payment of an amount by a taxpayer

• (a) to a person who is

  • (i) the taxpayer's spouse or former spouse, or

  • (ii) where the amount is paid pursuant to an order made by a competent tribunal after February 10, 1988 in accordance with the laws of a province, an individual of the opposite sex who

    • (A) before the date of the order cohabited with the taxpayer in a conjugal relationship, or

    • (B) is the natural parent of a child of the taxpayer, or

• (b) )

  for the benefit of the person or children in the custody of the person, or both the person and those children,

the amount or any part thereof, when paid, shall be deemed, for the purposes of paragraphs 60(b), (c) and (c.1), to have been paid to and received by that person.

7 Respondent's counsel stated that the sole question was whether the children of the Appellant and Donna were, within the meaning of paragraph (b) above, “in the custody of” Donna in 1992. He said that if they were in her custody the Appellant would succeed. He thereby acknowledged that for the purposes of subsection 56(12) and paragraph 60(b) the payments made by the taxpayer were an “allowance”. Presumably, this acknowledgment was made on the basis of a general construction of the meaning of section 60.1, paragraph 60(b) and subsection 56(12).

8 Paragraph 60(b) reads as follows:

There may be deducted in computing a taxpayer's income for a taxation year such of the following amounts as are applicable:

• (b) an amount paid 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 taxpayer was living apart from, and was separated pursuant to a divorce, judicial separation or written separation agreement from, the taxpayer's spouse or former spouse to whom the taxpayer was required to make the payment at the time the payment was made and throughout the remainder of the year;

9 Subsection 56(12) reads as follows:

Subject to subsections 56.1(2) and 60.1(2), for the purposes of paragraphs (1)(b), (c) and (c.1) (hereinafter in this subsection referred to as the “former paragraphs”) and 60(b), (c) and (c.1) (hereinafter in this subsection referred to as the “latter paragraphs”), “allowance” does not include any amount that is received by a person, referred to in the former paragraphs as “the taxpayer” and in the latter paragraphs as “the recipient”, unless that person has discretion as to the use of the amount.

10 Assuming it is necessary to consider paragraph 60.1(1)(b), one must determine who the person is within the opening words of paragraph 60.1(1)(b) because the payment must be

for the benefit of the person or children in the custody of the person, or both the person and those children,

11 That subparagraph, assuming it should be considered, would then, given the custody issue being resolved in favour of the taxpayer, render the payments deductible under paragraph 60(b).

12 One wonders whether subsection 60.1(1) applies in this case. It has been conceded by the Respondent that the payments made by the Appellant are an “allowance” within the meaning of subsection 56(12). Accordingly, it seems open for the Court to conclude that the payment would be deductible under paragraph 60(b) in that it was an allowance payable on a periodic basis for the maintenance of the children of the marriage, the Appellant living apart from and being separated pursuant to a divorce from, Donna. The difficulty is that, under paragraph 60(b), Donna must be the person “to whom the taxpayer was required to make the payment at the time the payment was made”. The same difficulty exists if one seeks to apply the result achieved under paragraph 60.1(1)(b) to paragraph 60(b). Subparagraph 60.1(1)(b) provides that

...the amount ... for the purposes of paragraph 60(b) ... shall be deemed ... to have been paid to and received by that person,

to whom the taxpayer was required to make the payment.

13 My resolution of the problems caused by legislation is consistent with the fact that the Court Order was made by consent of the parties, thus expressing clearly the will of Donna.

14 If subparagraph 60.1(1)(b) must be considered[FN1: <p>The only reason being that an analysis of it helps cure the defective legislation as described above.</p>] , then the word “custody” must be examined. That word is not defined in the Act. The phrase “custody and control” appears in paragraph 252(1)(b) which provides an extended meaning of “child”. It includes

...a person who is wholly dependent on the taxpayer for support and of whom the taxpayer has, or immediately before the person attained the age of 19 years had, in law or in fact, the custody and control.

“custody” includes care, upbringing and any other incident of custody.

Safe-keeping; protection; care; guardianship.