Date:20000905
Docket: 2000-993-IT-I
BETWEEN:
MUMTAZ RANGWALA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Campbel, JTCC.
Appearances
For the Appellant: The Appellant herself
Counsel for the Respondent: Michelle Farrell
Judgment
The appeals from the assessments made under the Income Tax Act for the 1995, 1996 and 1997 taxation years are allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
The appeal from the assessment for the 1998 taxation year is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment to give effect to the admission contained in paragraph 8 of the Reply to the Notice of Appeal.
There will be no order for costs.
Signed at Ottawa, Canada, this 19th day of September 2000.
|
"Diane Campbell" |
J.T.C.C.
Date: 20000919
Docket: 2000-993(IT)I
BETWEEN:
MUMTAZ RANGWALA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Campbell, J.T.C.C.
[1] This is an appeal from an assessment for the Appellant’s 1995, 1996 and 1997 taxation years whereby the Minister of National Revenue denied the Appellant’s claim for a goods and services tax credit (GSTC) under section 122.5 of the Income Tax Act and also denied the Appellant’s claim for child tax benefits with respect to the 1995, 1996 and 1997 base taxation years under sections 122.6 and 122.61 of the Act.
[2] By a notice of re-determination dated April 23, 1999, the Minister informed the Appellant that a revised GSTC had been calculated which resulted in an overpayment with respect to the Appellant’s GSTC for the 1995, 1996 and 1997 taxation years.
[3] By a further notice of determination dated July 9, 1999 the Minister further advised the Appellant that she was not entitled to GSTC for the 1998 taxation year either. In the Reply of the Minister, it was conceded that for the 1998 taxation year, the Appellant was living separate and apart from the spouse having divorced and moved into her own residence. This was therefore no longer an issue.
[4] By Child Tax Benefit Notices dated May 20, 1999, the Minister informed the Appellant that with respect to the 1995, 1996 and 1997 base taxation years, it had been re-determined that the amount of child tax benefits received by the Appellant had been overpaid.
[5] In making these re-determinations the Minister denied the child tax benefits to the Appellant because under section 122.6 of the Act the spouse of the Appellant was her cohabiting spouse and they were not considered to be living separate and apart. The GSTC was denied under subsection 122.5(1) of the Act as the Minister made the determination that the Appellant’s spouse was a “qualified relation”. Therefore the spouse's income had to be taken into consideration.
[6] The relevant facts of the case follow. The Appellant married in December 1974 at Bombay, India. They came to Canada in 1975. Marital problems began in 1988. As early as 1991, the Appellant was contemplating separation and applied for a car loan without including her husband's income in order to establish credit in her own name. They unsuccessfully attended counselling and eventually a separation agreement was signed in 1993. After this agreement was signed, the Appellant took the necessary steps to advise her employer of her change in marital status in respect to superannuation and medical benefits. In fact one of the exhibits entered into evidence by the Appellant was correspondence from the Appellant’s employer confirming that she had forwarded a copy of her separation agreement to them in April 1993. The Appellant also changed her RRSP beneficiary to her son, Riaz.
[7] The primary assets of the marriage were the matrimonial home which was in both names and the husband's pension (although no evidence was introduced to establish the value of the pension). The house was not subject to a mortgage. In the Appellant’s evidence she indicated that she had determined in her mind what her one-half interest in the house was worth. She determined the house value by contacting a realtor although it was never actually appraised. Because the Appellant and her husband could not agree on the value and the husband wanted to keep the house, the Appellant continued to live in the lower part of the side split home. Her premises consisted of a bedroom, bathroom and family room. She had the use of the kitchen, telephone and laundry. She had her own refrigerator located in her part of the house. She kept her food separately labelled and the parties never sat together for meals. She performed no domestic services for him whatsoever.
[8] Their son continued to reside in his own bedroom in the upper half of the home that his father occupied. Since the parties had agreed to joint custody each became responsible for the preparation of his meals and seeing that his needs were met during alternate months. The Appellant was also responsible for the son’s expenses associated with sports, camp and clothing. In her testimony, the Appellant stated that, although employed, she could not afford to move out of the home prior to receiving her money for the house. In addition she felt the son would not want to stay with her during alternate months if she had only a one-bedroom apartment.
[9] On cross-examination, she testified that when she had surgery in 1995, she listed her son as next of kin. Her brother came from the United States to assist her at this time. She testified that she was not aware if the husband was ever sick, as she did not bother with him and did not really care. In response to questioning, she stated that she never dated while living in the house and was simply unaware whether the husband was dating or not.
[10] The separation agreement of 1993 referred to a $200.00 monthly child support payment that the husband was to pay. He made the payments until sometime in 1994. She testified that she never asked her husband to continue the monthly payments as she was just too proud and that it would be traumatic for the child to have the parents arguing over this. While it was being paid she used this money for the son’s clothes, camp, etc. When the husband stopped payment, she still provided those items for her son by borrowing money from the Bank and not taking holidays herself.
[11] The Appellant gave evidence that there was no communication except for the occasional discussion concerning the welfare of their son. The one witness called by the Appellant testified that there appeared to be no communication between them. This witness was a friend of both the Appellant and her husband and she testified that she realized in the late 1980’s there was a marital problem. She stated that if she invited them to a function each was invited separately and each attended in different cars with separate gifts and did not communicate with each other during the gathering. Other than this type of function, if the witness socialized with either, she did so separately.
[12] The Appellant stated that she did not contribute financially to the residence except for her long distance calls, as she felt that she was not charging, and would not charge, the husband any interest on the money she expected to eventually receive for her share of the residence. It was her decision to forego interest on money she felt she was otherwise entitled to in 1993 when the parties separated. She therefore saw this as more than offsetting any contribution she would otherwise be expected to make toward household expenses. This point was never discussed with the husband. The Appellant just simply decided this on her own. It was probably never discussed as the parties never talked unless it was occasionally in respect to their son.
[13] The 1993 separation agreement stated that all assets had been divided between the Appellant and her husband. Nothing could have been further from the truth. The Appellant’s evidence was that she informed her solicitor at the time of drafting of the agreement that she was not signing off her interest in the home until she received a certain sum and that until she did, she would live in part of the home. I accept the Appellant's evidence on this as she presented herself as honest and straightforward. It is astonishing that the solicitor ignored the information conveyed by his client and drafted an agreement which in no way reflected the circumstances of the parties. I do not accept that the separation agreement speaks for itself.
[14] In calculating child tax benefits and GSTC in respect to the relevant tax years, the Minister took into consideration the income of the Appellant’s spouse. The Appellant submits that the spouse’s income should not have been considered as she was living separate and apart although under the same roof.
[15] Reference must therefore be made to subsection 252(4) of the Act and the definition of "spouse". This section in its definition talks about cohabitation in a conjugal relationship.
[16] It is an accepted statement of law that it is possible for spouses to live separate and apart even though they reside under the same roof. Rushton v. Rushton, [1969] 66 W.W.R. 764, 2 D.L.R. (3d) 25 (B.C.) is cited as one of the leading cases in support of this proposition.
[17] The cases in respect to spouses living separate and apart received a thorough review by Bowman, T.C.J. in Kelner v. Canada [1995] T.C.J. No. 1130. He stated that the expression “separate and apart”, for the purposes of the Act, should not be given a different meaning from that given to it under the Divorce Act.
[18] In defining the meaning of "separate and apart”, Bowman, T.C.J. quoted Holland, J. in Cooper v. Cooper (1973) 10 R.F.L. 184 (Ont. H.C.) at p. 187 as follows:
Certainly spouses living under the same roof may well in fact be living separate and apart from each other. The problem has often been considered in actions brought under s. 4(1)(e)(i) of the Divorce Act and, generally speaking, a finding that the parties were living separate and apart from each other has been made where the following circumstances were present:
(i) Spouses occupying separate bedrooms.
(ii) Absence of sexual relations.
(iii) Little, if any, communication between spouses.
(iv) Wife performing no domestic services for husband.
(v) Eating meals separately.
(vi) No social activities together.
[19] In M.N.R. v. Longchamps, 86 DTC 1694, Couture, C.J.T.C. concluded that it is a question of fact whether spouses are living separate and apart and each case is to be decided upon its own facts.
[20] Milot v. Canada, [1995] T.C.J. No. 412, dealt with the term “spouse” as defined in subsection 252(4) of the Act and the notion of “conjugal relationship” as referred to within the context of that subsection. In so doing, Lamarre Proulx, T.C.J. referred to Moldowich v. Penttinen (1980), 17 R.F.L. (3d) 376 (Ont. Dist. Ct.). That case identified relevant criteria to be used as a guide in establishing what constitutes cohabitation or a conjugal relationship.
[21] In applying the relevant case law to the facts of this case, I am of the view that between 1993 and 1998 the Appellant did not cohabit with her spouse in a conjugal relationship. Counsel for the Minister asked that I pay particular attention to the financial arrangements between the parties (i.e. no rent paid by the Appellant, no financial contribution from the Appellant toward household expenses other than payment of her long distance telephone calls).
[22] Counsel for the Minister quoted several passages from Macmillan-Dekker v. Dekker, [2000] O.J. No. 2927. I see nothing in this case that would establish support for the proposition that financial contribution or lack of it should be given any more importance than any one of the other aforesaid criteria. In fact, Wilson, J. states:
Based on a synthesis of prior case law, the court established a list of seven factors to be used to determine whether or not a conjugal relationship exists or existed. These organising questions permit a trial judge to view the relationship as a whole in order to determine whether the parties lived together as spouses. Reference to these seven factors will prevent an inappropriate emphasis on one factor to the exclusion of others and ensure that all relevant factors are considered.
[23] He also states that:
...
I conclude that there is no single, static model of a conjugal relationship, nor of marriage. Rather, there are a cluster of factors which reflect the diversity of conjugal and marriage relationships that exist in modern Canadian society. Each case must be examined in light of its own unique objective facts.
[24] Counsel also cited Lavoie v. Canada, [1999] T.C.J. No. 688 in support of the importance of financial arrangements. In this case, Dussault, T.C.J., in applying the seven criteria of Moldowich,appeared to place more importance on the criteria of economic support and financial arrangements between the parties. The facts in that case can be distinguished from the facts of the case before me. The parties in Lavoie purchased a share in a residence and shared a joint bank account from which mortgage payments were made.
[25] In reviewing the relevant case law it is clear that each of the criteria must be given its proper weight in the context of each particular case in determining whether a conjugal relationship exists or not. Each case by its nature will present its own unique set of facts to which the seven criteria established in Moldowich are to be applied. This approach is meant to provide a certain amount of flexibility in deciding each case.
[26] The most difficult aspect of this case was the financial arrangement. The wife contributed to household expenses by payment of her long distance telephone calls and in 1996 she paid for a new roof. Other than this, the Appellant looked after her own expenses of food, car, etc. During the alternate months in which she took charge of her son, she bought food, prepared meals, etc. for her son. The Appellant’s idea of notional interest that she was foregoing on her share of the house value in lieu of contribution to household expenses was valid to her way of thinking. She felt her husband could afford to pay her as he was an accountant and although they were not able to discuss anything, much less negotiate her share of the house, she stated that by “staying in the house and staying in his face” (as she put it) she would eventually get her settlement. She felt that in foregoing any claim to her husband’s pension as well as foregoing any interest she would otherwise have received on the money, she was sufficiently contributing to her share of the household expenses. In light of the evidence it is not surprising that no discussion took place between the Appellant and her husband in respect to this arrangement.
[27] In Kelner v. Canada, Bowman, T.C.J. found “both physical and psychological separation” in respect to the relationship. That is certainly the case before me. All the circumstances considered together within the context of the Moldowich criteria establish that they were living separate and apart due to a breakdown of the marriage. They shared the same address and little else.
[28] The appeals are allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment to allow the Appellant the Goods and Services Tax Credit and the Child Tax Benefits for the relevant periods. The Goods and Services Tax Credit for the 1998 taxation year admitted to in paragraph 8 of the Minister's Reply is also referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the admission contained in paragraph 8 of the Minister's Reply to the Notice of Appeal.
Signed at Ottawa, Canada, this 19th day of September 2000.
"Diane Campbell"
J.T.C.C.