Tardif T.C.J.:
1 Pursuant to the order by the Honourable Judge Christie, issued on August 10, 1994, in file no. APP-169-94-IT, the appellant obtained the extension of time required in order to file a notice of appeal for the 1990 and 1991 taxation years. The appeal concerns sections 3 and 248, subsections 56(12), 56.1(1), 56.1(2), 60.1(1) and 60.1(2) and paragraphs 56(1)(b) and 56(1)(c) of the Income Tax Act (the “Act”), as amended and applicable to the 1990 and 1991 taxation years, as well as sections 1 and 15 of the Canadian Charter of Rights and Freedoms.
2 The facts are not in dispute. The point at issue is essentially whether, in computing her income for the 1990 and 1991 taxation years, the appellant had to include amounts totalling $8,673 in 1990 and $7,950 in 1991 in respect of maintenance payments or other allowances payable on a periodic basis. These were amounts paid by the appellant's former spouse for the hypothecary, tax and insurance payments in respect of the residence the enjoyment of which the appellant had obtained through a right of habitation. Pursuant to the judgment by the Superior Court, this right of habitation will terminate when the younger of the two children of which she obtained custody will reach the age of legal majority.
3 The provisions of the judgment rendered by the Honourable Judge Henri Lebrun on March 30, 1987, respecting the obligations that formed the basis of the instant appeal read as follows:
[TRANSLATION]
Grants to the respondent, for her minor children until the younger of the two reaches the age of legal majority, a right of habitation of the marital home described as follows:
A site located on the northeast side of Avenue Trémoy, in the city of Ste-Foy, known and designated as:1. Subdivision number FIVE of original lot number FIVE HUNDRED AND FORTY-FOUR (544-5) of the official cadastre for the parish of Ste-Foy, Quebec registration division;
2. Subdivision number SIX of the same original lot number FIVE HUNDRED AND FORTY-FOUR (544-6) of the said cadastre.
Orders the applicant to make the hypothecary payments and pay the property taxes on the aforementioned immoveable as well as the insurance premiums in respect thereof.Also orders the applicant to pay to the respondent, for her minor children, maintenance of $250 a month, payable in advance at the respondent's domicile on the first day of each month. This payment of $250 is not indexed. (My emphasis.)
4 The respondent contended that the legal provisions applicable at the time required the appellant to include in her income the amounts paid by her former spouse in respect of hypothecary payments, insurance and taxes.
5 The Department based its claims on Gagnon v. R., [1986] 1 S.C.R. 264 (S.C.C.), in which the issue was as follows:
The issue is whether the payments of $360 a month made by appellant to his former wife in the taxation years 1974, 1975 and 1976, for the repayment of two hypothecs and municipal and school taxes on the immovable of his former wife, can be deducted from the appellant's income under s. 60(b) of the Income Tax Act.
6 In this judgment, the Supreme Court referred to R. v. Pascoe (1975), [1976] 1 F.C. 372 (Fed. C.A.), in which it was clearly indicated that, for the payment of a sum of money to be regarded as an “allowance”, it had to meet three conditions:
(1) the amount must be limited and predetermined;
(2) the amount must be paid to enable the recipient to discharge a certain type of expense;
(3) the amount must be at the complete disposition of the recipient, who is not required to account for it to anyone.
7 In considering these three conditions, Beetz J. wrote as follows with respect to the third condition:
Seen in this context, the third condition imposed by Pascoe must be corrected: for an amount to be an allowance within the meaning of s. 60(b) of the Income Tax Act, the recipient must be able to dispose of it completely for his own benefit, regardless of the restrictions imposed on him as to the way in which he disposes of it and benefits from it. (The emphasis is mine.)
He continued as follows:To return to the circumstances of the case at bar, there is no doubt that the recipient of the amounts in question, appellant's former wife, could dispose of them completely, and that she derived from them what Burton J. called in Rutkin, at p. 137, a “readily realizable economic value”. The duty which she had to apply these amounts to particular purposes does not affect the benefit she derived from them. These amounts are in the nature of income for her, and qualify as “allowances” within the meaning of both s. 60(b) and 56(1)(b) of the Income Tax Act.
8 The amounts added to the appellant's income which are at issue in the instant case were not limited and predetermined. They could fluctuate as a result of the hypothecary payments, which were based on the amortization period and interest rates, and of the property taxes and insurance premiums.
9 Furthermore, the amounts paid to the appellant did not meet or comply with the new requirement set by the Supreme Court in Gagnon, supra, that the recipient must be able to dispose of them completely for her own benefit.
10 With respect to the first test, Pascoe, supra, provides that the amount paid must be limited and predetermined. In the instant case, the nature of the amount payable by the debtor of support was identified: the amount was for hypothecary payments, property taxes and insurance premiums. Thus, although I do not think this test was met, I believe I must continue the analysis since Gagnon, supra, amended and clarified the tests that must be met for characterizing the amounts paid and received by creditors and debtors of support as a result of marriage breakdown.
11 The amounts that were added to the appellant's income were not paid directly to her. The payments were made directly, without her knowledge, to the three inherent creditors: the hypothecary creditor, the municipality where the residence covered by the hypothec was located and, lastly, the insurer of the said immoveable. The amount was not an amount paid in respect of rent. These were, beyond any shadow of a doubt, outlays that benefitted the debtor of support, who is to recover the immoveable occupied by the appellant upon expiry of the right of habitation. The payer's patrimony will therefore eventually be increased by the payments he has made; this continuous enrichment thus penalized the appellant, who, in the circumstances, did not benefit fully from the payments.
12 The judgment awarded the appellant only the enjoyment (right of habitation) of the residence for a definite period. Consequently, a significant portion of the amounts paid to the third parties was capitalized for the benefit of the payer, that is the appellant’s former husband, to whom, under the terms of the judgment of divorce the immoveable is to be returned when the younger of the minor children reaches the age of legal majority.
13 It seems clear to me in the circumstances that the appellant did not have the full benefit of the amounts that her former spouse paid to the hypothecary creditor, to the municipality and to the insurer. Lebrun J.'s judgment is very clear: it concerns only “HYPOTHECARY PAYMENTS AND PROPERTY TAXES COVERING THE AFOREMENTIONED IMMOVEABLE AS WELL AS THE INSURANCE PREMIUMS IN RESPECT THEREOF”.
14 There is therefore no doubt that the payments benefitted the payer as much as the appellant since a portion of the outlays went to reduce the principal owed by her former spouse. Furthermore, the tax and insurance payments also benefitted the debtor of support.
15 Beetz J. was very clear:
The recipient must be able to dispose of it completely for his own benefit.
16 As to the second point raised in the notice of appeal, that relating to the application of the Charter, I do not see any interest in discussing the matter since the appellant adduced no evidence in support of her claims and furthermore did not join the Attorney General.
17 The appellant therefore did not have to include in her income for the 1990 and 1991 taxation years the amounts that her former spouse paid in respect of hypothecary payments, property taxes and insurance premiums.
18 The appeal is therefore allowed.
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