Section 56.1

The taxpayer and his wife separated in 2010 and on March 6, 2011, entered into separation agreement without legal counsel. Although the spousal support (set at $3,500 a month) was stipulated to end in December 2014, such support continued to be paid by the taxpayer thereafter and was included by her in her income. The Minister denied the taxpayer’s claimed deduction of $42,000 for the 2018 taxation year on the basis that the payments were made without a written separation agreement being in place. The taxpayer argued that an implied contract continued to exist after 2014, referring (at para. 13) to a statement in Chitty on Contracts that there may “be an implied contract when the parties make an express contract to last for a fixed term, and continue to act as though the contract still bound them after the term has expired and a written agreement.”

In rejecting this submission, MacPhee J stated (at para. 19):

An implied contract … does not meet the requirements of the Act in order to make a deduction of support payments.

In nonetheless allowing the taxpayer’s appeal, MacPhee J stated (at paras. 20-22):

There is no question that the contract the parties relied upon was flawed. Yet it was an agreement in writing, setting out the support payments.

The parties continued through the 2018 taxation year to consider themselves bound by their 2011 separation agreement. …

… I am guided by the plain meaning of the words of the Act … . I have concluded that the payments were made pursuant to the terms of a written agreement.

The taxpayer divorced her spouse and, pursuant to an "agreement for corollary relief," ratified by the Quebec Superior Court, received a total of $173,000 for the taxation years in question in weekly payments of $1000. The Minister characterized these payments as support amounts, and reassessed the taxpayer accordingly.

Favreau J found that the payments could not be construed as support amounts under the terms of the agreement. Although the section that set out the payments was entitled "Support of the female petitioner," the text of the section made it clear that the taxpayer and her spouse agreed to waive their rights to any support. Moreover, the spouse did not deduct the payments on his returns until approximately four years after the agreement was ratified, whereupon he requested an adjustment for his prior returns.

Apart from the text of the agreement, the taxpayer established that the payments were a "compensatory allowance as part of the partition of the family patrimony and the matrimonial regime" - she received the payments in exchange for her share of the business that she operated with her former spouse.

A consent judgment provided that the taxpayer direct a portion of her support payments towards certain home expenses, such as taxes, insurance, heating, and water. Masse J found that the taxpayer nevertheless had discretion as to use of the payments, given that the taxpayer was under no obligation to continue to incur any of the expenses in question.

Pursuant to a court order, the taxpayer paid his former spouse one half of any bonuses he received from employment. Bédard J found that such amounts were not "periodic" for the purposes of the "support amount" definition, given that, although a non-payment was unlikely, there was no guarantee that bonuses would be paid every year.

The British Columbia Court of Appeal ordered a retroactive increase in the monthly amount of the support payments the taxpayer paid to his spouse, and was thus made to pay a lump sum equal to the monthly increases. Pursuant to the finding in Dale that retroactive court orders are binding on the Minister for tax purposes, C Miller J found that the lump sum represented payments "on a periodic basis," and therefore comprised support payments.

The present case was distinguishable from Peterson, in which there was insufficient proof that the lump sum in question represented periodic payments.

Amounts the taxpayer received from her spouse were support amounts notwithstanding that she "had a legal responsibility to pay off the mortgage [for the matrimonial home] and as such she had no choice but to make the mortgage payments with the support payments she received," and therefore, according to the taxpayer, she did not have discretion as to their use. Angers J stated (at para. 15):

I agree with Justice Hugessen of the Federal Court of Appeal in McKimmon ... at paragraph 15 where he writes that "common experience indicates that such things as life insurance premiums and blended monthly mortgage payments, while they allow an accumulation of capital over time, are a normal expense of living which are paid from income and can properly form part of an allowance for maintenance."

Woods J. found that the taxpayer's court-ordered support payments to third parties for a former spouse's benefit were not "support amounts" under s. 56.1(4) because, being payments to third parties, the former spouse did not have discretion as to their use.

The taxpayer made payments to his former spouse of $5000, $10,000 and $4200 between 13 July 2009 and 6 August 2009, which freed the taxpayer from future obligations to make support payments. Bédard J. found that the amounts were capital in nature, did not constitute an "allowance on a periodic basis," and therefore were not support amounts, on reasons similar to Lam.

Sheridan J. found that the taxpayer could not deduct the $40,000 he paid his former common-law spouse in monthly instalments of $1,500, because (following the McKimmon test) they "were installments on a capital amount rather than an allowance for maintenance" (para. 5). The agreement between the taxpayer and his spouse specified that the taxpayer would be released from any future obligations to pay maintenance. Moreover, the payments were to continue even if the spouse were to die before the payment period concluded.

When a married couple separated, the husband's support payments made pursuant to their "summary of mediated agreements" were deductible. The summary was enough to satisfy the requirement in s. 56.1(4) for an agreement in writing, given that mediated agreements had been finalized and adhered to. Hogan J. stated at para. 11:

The [Minister] also argued that the mediated agreement contained a warning that it could not be construed as a contract or court judgment, meaning it was not intended to be binding. This does not necessarily mean that the parties could not have intended or did not intend to be bound by the agreement. The statement seems to be more of a notification that further steps were required in order for the agreement to be enforceable in a court of law. The parties may not have filed the agreement with a court having jurisdiction in that regard, as advised, but the Appellant gave a reasonable explanation for not doing so, stating that he and his former spouse wanted to avoid legal costs.

Hogan J. attached little weight to the lack of a signature, given that Shaw (2007 TCC 148) and Foley (2000 UDTC 174, [2000] 4 C.T.C. 2016 (TCC)) clearly establish that a signature is not required.

The Crown argued that because the maintenance arrears of the taxpayer were reduced due to his diminished financial circumstances, the amounts paid by him to his former spouse pursuant to the amended judicial order "do not represent amounts paid for the maintenance of the former spouse but were, rather, amounts paid to obtain a release from an existing obligation", so that they did not qualify as payments of a "support amount". In rejecting the submission, and finding that the amounts were deductible to the taxpayer, Archambault, J. stated (at para. 22-23):

"... I do not believe that whenever a taxpayer pays an amount less than the amount of arrears of spousal support (or of any other deductible or taxable amount for that matter) one must automatically conclude that the amount so paid is not deductible or taxable because the nature of the payment has changed ... In my view, the situation is different where a person agrees to pay for being released from future obligations, such as the payment of a pension, an annuity or any other kind of future income."

Because the amounts the taxpayer was ordered to pay were for the support originally ordered, albeit reduced as a result of significant changes in his circumstances, the situation was different from that in which a reduced amount was negotiated between him and his former spouse.

Periodic payments made by the taxpayer to a woman (the mother of his child) with whom he had not lived in a conjugal relationship pursuant to a written agreement that was filed in the Ontario Court of Justice (Provincial Division) did not qualify as a support amount under paragraph (b) of the definition. Although Ontario statutes provided for the enforcement of the agreement through the same mechanism that was available for the enforcement of court orders, they did not deem the agreement to be a court order for purposes other than those of those statutes. Accordingly, the payments were non-creditable.