Date: 20000111
Docket: 1999-261-IT-I
BETWEEN :
MANON LACOMBE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Lamarre Proulx, J.T.C.C.
[1] This is an appeal under the informal procedure for the 1997 taxation year. The issue is whether the appellant must include the support arrears she received in 1997 in her income for the 1997 taxation year even though the amounts in question were owed for 1996.
[2] In her Notice of Appeal, the appellant submits that arrears for 1996 should be taxed as part of her income for that year and not 1997, the year she received them.
[3] The facts on which the Minister of National Revenue ("the Minister") relied in making his assessment are set out in paragraphs 4, 5, 8 and 9 of the Reply to the Notice of Appeal ("the Reply").
[TRANSLATION]
4. By letter dated August 13, 1998, the appellant requested the Minister to carry back to the 1996 taxation year an amount of $3,432 that she had received and reported in the 1997 taxation year as alimony or other allowance payable on a periodic basis.
5. On September 9, 1998, the Minister notified the appellant in writing that he could not adjust the 1996 and 1997 tax returns as regards the support amounts because, under the Income Tax Act (hereinafter "the Act"), an amount is taxable the year it is received.
. . .
8. In issuing the notice of assessment dated August 11, 1998, the Minister assumed, inter alia, the following facts:
(a) the appellant admitted that she had received support;
(b) in her tax return, the appellant reported $6,668 as alimony or other allowance payable on a periodic basis.
9. In confirming the notice of assessment dated August 11, 1998, the Minister assumed, inter alia, the following facts:
(a) during the 1997 taxation year, the appellant received $6,668, broken down as follows, through the Service de perception des pensions alimentaires:
(i) support arrears (prior to 1996) $357
(ii) support arrears (1996) $2,731
(iii) support (1997) $3,580
$6,668
(b) the amount of $6,668 is taxable in the year it was received.
[4] The facts relied on by the appellant and the reasons for her appeal are set out as follows in her Notice of Appeal:
[TRANSLATION]
I consider it "very unfair" that the law is applied without regard for the circumstances, whether they be justified or not.
Briefly, I will tell you that I am the breadwinner in a single-parent family with one child who is considered "disabled" because he has to take medication every day if he is to be able to keep up the same pace (or relatively the same) as other children his age at school. He is 11 (soon to be 12) years old.
I therefore need to be able to pay the cost of the medication and everything that that implies.
. . .
In 1997, when he got back, he paid me the two years (1996 and 1997 support) that they are refusing to apportion, as should actually have been done, even though I had previously requested this.
Analysis
[5] Paragraph 56(1)(b) of the Income Tax Act ("the Act") and the definitions of "support amount", "child support amount" and "commencement day" in subsection 56.1(4) read as follows:
56(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,
. . .
(b) Support — the total of all amounts each of which is an amount determined by the formula
A - (B + C)
where
A is the total of all amounts each of which is a support amount received after 1996 and before the end of the year by the taxpayer from a particular person where the taxpayer and the particular person were living separate and apart at the time the amount was received,
B is the total of all amounts each of which is a child support amount that became receivable by the taxpayer from the particular person under an agreement or order on or after its commencement day and before the end of the year in respect of a period that began on or after its commencement day, and
C is the total of all amounts each of which is a support amount received after 1996 by the taxpayer from the particular person and included in the taxpayer's income for a preceding taxation year.
(Emphasis added.)
56.1(4) "support amount" means an amount payable or receivable as an allowance on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and children of the recipient, if the recipient has discretion as to the use of the amount, and
(a) the recipient is the spouse or former spouse of the payer, the recipient and payer are living separate and apart because of the breakdown of their marriage and the amount is receivable under an order of a competent tribunal or under a written agreement; or
(b) the payer is a natural parent of a child of the recipient and the amount is receivable under an order made by a competent tribunal in accordance with the laws of a province.
"child support amount" means any support amount that is not identified in the agreement or order under which it is receivable as being solely for the support of a recipient who is a spouse or former spouse of the payer or who is a parent of a child of whom the payer is a natural parent.
"commencement day" at any time of an agreement or order means
(a) where the agreement or order is made after April 1997, the day it is made; and
(b) where the agreement or order is made before May 1997, the day, if any, that is after April 1997 and is the earliest of
(i) the day specified as the commencement day of the agreement or order by the payer and recipient under the agreement or order in a joint election filed with the Minister in prescribed form and manner,
(ii) where the agreement or order is varied after April 1997 to change the child support amounts payable to the recipient, the day on which the first payment of the varied amount is required to be made,
(iii) where a subsequent agreement or order is made after April 1997, the effect of which is to change the total child support amounts payable to the recipient by the payer, the commencement day of the first such subsequent agreement or order, and
(iv) the day specified in the agreement or order, or any variation thereof, as the commencement day of the agreement or order for the purposes of this Act.
[6] Paragraph 56(1)(b) was amended in 1998 to exclude child support amounts from the computation of income. The amendment is applicable to amounts received after 1996. For orders, judgments or agreements prior to May 1997, the new provisions do not apply unless the conditions set out in paragraph (b) of the definition of "commencement day" apply thereto.
[7] According to Exhibit A-1, which is a document entitled "Register of support payments, Act to facilitate the payment of support (1995, c. 18)", the date of the order is January 23, 1989. No joint election was filed with the Minister pursuant to subparagraph (i) of the definition of "commencement day". Consequently, only support amounts are in issue, not child support amounts, since paragraph 56(1)(b) requires an agreement with the requisite commencement day for the "child support amount" portion to apply.
[8] In this case, the issue is therefore basically whether the support arrears paid in 1997 must be included in computing the appellant's 1997 income. The first question that may be asked in this regard is whether a taxpayer must include in his or her income support amounts that are paid late and not in accordance with the judgment or written agreement. Is it not contrary to the purpose of the Act to require the recipient to include them and allow the payer to deduct them when what the Act seems to contemplate is facilitating the periodic payment of support to meet the recipient's current and immediate needs? This question was decided by the Federal Court of Appeal in The Queen v. Sills, [1985] 2 F.C. 200. According to that decision, which reversed the decisions of the Tax Review Board and the Federal Court–Trial Division, support payments do not change in character as a result of not being made on time and on a periodic basis as required by the judgment or agreement under which the amounts are payable. I cite Heald J.A. at page 204:
I have no hesitation in concluding that both the Tax Review Board and the learned Trial Judge were in error in their interpretation and application of the provisions of paragraph 56(1)(b) to the facts in this case. An analysis of the paragraph reveals the following requirements (when applied to these facts):
(A) the amounts received by the taxpayer in the year under review must be received pursuant to the terms of the separation agreement;
(B) they must be received as alimony or other allowance payable on a periodic basis;
(C) they must be payable for the maintenance of the recipient thereof, children of the marriage or both the recipient and the children; and
(D) the recipient must be living apart from and be 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.
(page 205)
. . . All of it was payable on a monthly basis as stipulated in the separation agreement. Where the Trial Judge erred, in my view, was in not having due regard to the use of the word "payable" in the paragraph. So long as the agreement provides that the monies are payable on a periodic basis, the requirement of the paragraph is met. The payments do not change in character merely because they are not made on time. . . .
[9] Thus, support payments do not change their character under the Act as a result of not being made on time. They remain support amounts. The second question that follows is in what year the payments must be included in computing the recipient's income. Counsel for the respondent referred to my decision in Poulin v. Canada, [1998] T.C.J. No. 36, in which I mentioned the relevant case law in paragraph 15:
The concept of the receipt of an amount and the relevant taxation year has already been considered by the courts; I am referring, inter alia, to Vegso v. M.N.R., 56 DTC 173, M.N.R. v. Claude Rousseau, 60 DTC 1236, and the decision cited by the agent for the respondent, Archambault v. M.N.R., 88 DTC 1722. The courts have been consistent on this point. When the legislation provides that an amount received must be included in computing income for the year, the amount must be included in the year it is received, not the years for which it was paid.
[10] Thus, when the Act provides that an amount received must be included in computing income for a year, it must be included in that year, that is, the year it is received. When the introductory portion of subsection 56(1) and paragraph 56(1)(b) (both quoted above) are read together, as they properly should be, it can be seen that a support amount received before the end of the year must be included in computing income for that taxation year. Paragraph 56(1)(b) of the Act states that the total of all amounts each of which is a support amount received after 1996 and before the end of the year must be included. As mentioned above, paragraph 56(1)(b) of the Act was amended in 1998 for amounts received after 1996, which explains why the current wording says "after 1996". However, the obligation to include the support amounts received has always existed.
[11] In conclusion, support payments, even when made late, do not change in character and must be included in computing the recipient's income in the year they are received, not the year they became payable or due.
[12] The appeal is dismissed.
Signed at Ottawa, Canada, this 11th day of January 2000.
"Louise Lamarre Proulx"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]