Date: 20020606
Docket: 2001-3626-IT-I
BETWEEN:
HUGUETTE PAYETTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Lamarre Proulx, J.T.C.C.
[1] This is an appeal under the informal procedure relating to the 1997 to 1999 taxation years.
[2] The issue is whether the appellant must include in her income support in the amounts of $5,575, $9,220 and $11,932 she received from her former spouse for her children for each of the years in issue respectively.
[3] The facts on which the Minister of National Revenue (the "Minister") relied in making his reassessments are set out in paragraph 5 of the Reply to the Notice of Appeal (the "Reply") as follows:
[TRANSLATION]
(a) the appellant and Brian Nault (the "former spouse") separated on or about December 31, 1991;
(b) during the 1997, 1998 and 1999 taxation years, the appellant and her former spouse had four children: Sébastien, born on November 1, 1980, Jean-François, born on January 1, 1983, Caroline, born on April 1, 1984, and David, born on April 1, 1984;
(c) by an interim order dated December 13, 1996 (the "Order"), the Superior Court of Quebec ordered the former spouse to pay the appellant $1,500 a month as support for her children starting on December 15, 1996;
(d) during the 1997, 1998 and 1999 taxation years, the appellant received amounts of $5,575, $9,220 and $11,932 respectively as child support in accordance with the Order;
(e) the appellant and her former spouse were living separate and apart at the time the child support payments were made and during the rest of 1997, 1998 and 1999;
(f) the Order was made before May 1997 for the purposes of subsection 56.1(4) of the Income Tax Act (the "Act");
(g) the appellant and her former spouse did not file a joint election with the Minister in prescribed form and manner, as provided for in subparagraph (b)(i) of the definition of "commencement day" in subsection 56.1(4) of the Act;
(h) the Order was not cancelled or replaced by a subsequent order;
(i) the Order has no commencement day within the meaning of the definition in subsection 56.1(4) of the Act; and
(j) during the 1997, 1998 and 1999 taxation years, the appellant did not include the child support income in the amounts of $5,575, $9,220 and $11,932 respectively.
[4] The notice of appeal reads in part as follows:
[TRANSLATION]
. . .
In a telephone conversation with Mr. Tremblay, I learned—and it came as no surprise—that my former spouse, Brian Nault, objected to what I had stated in my first notice of objection, which I filed on May 1, 2000, and which led to a decision in my favour on January 25, 2001. So I had to start all over again.
. . .
[5] The appellant works as a cook. She admitted subparagraphs 5(a) and (c) to (f) of the Reply. As to subparagraph 5(b), she informed the Court that Sébastien was born on November 7, 1980, Jean-François on January 16, 1983, and David and Caroline on April 12, 1984.
[6] The order referred to in subparagraph 5(c) of the Reply was filed as Exhibit A-1.
[7] As Exhibit A-2, the appellant filed a document dated October 29, 1997, apparently signed by Brian Nault and Huguette Payette, which reads as follows:
[TRANSLATION]
I, Brian Nault, agree not to report or deduct the support which I give to my former wife, Huguette. This is an agreement for the benefit of our children since reporting or deducting the support would hurt the children financially. I will report no support on my income tax returns, and I truly undertake not to do so.
[8] The appellant also filed, as Exhibit A-3, the Quebec form concerning the election regarding a judgment or a written agreement. That document too is dated October 29, 1997, and is likewise apparently signed by both former spouses. It was also filed as Exhibit I-1.
[9] As well, Exhibit A-3 includes a copy of a notice of objection from the appellant dated August 17, 2000, which states inter alia:
[TRANSLATION]
. . . I obtained a court judgment awarding support on December 13, 1996, and received the first cheque on October 20, 1997. So I reached an agreement with Brian Nault, my former spouse, on October 29, 1997, that I would not report my support and that he would not deduct it. . . .
[10] The purported agreement to vary the inclusion/deduction regime had not been discussed between lawyers, but had apparently only been discussed between the two former spouses. The appellant said that it was difficult to reach her husband and that it would have been hard to draft a new agreement for the purpose of obtaining a new order. She explained as well that Mr. Nault did not report his income or claim the tax deductions relating to the payment of support. That, she said, was why he agreed to sign the document.
[11] Brian Nault testified at the request of counsel for the respondent, who showed him Exhibit A-1, being the Superior Court judgment dated December 13, 1996, and asked him how he interpreted the support order.
[12] Mr. Nault said that the agreement which had been discussed between the parties provided for the appellant to include the support in her income and for Mr. Nault to deduct it. A Superior Court judgment dated January 26, 2001, was filed as Exhibit I-2. That judgment provided that the support would be $578.84 a month starting on September 1, 2000. Since that order, said Mr. Nault, he can no longer deduct the support amounts paid for the children.
[13] Counsel showed Mr. Nault the handwritten note which is Exhibit A-2. He said that he had not signed that document because he would have consulted his lawyer first. He was paying the support, so why would he have paid his former spouse's taxes? He also asserted that he had deducted the support amounts in his income tax returns.
[14] Exhibit I-3 is a letter from Mr. Nault to the Canada Customs and Revenue Agency and bears his signature. It is a letter disputing the appellant's assertion that she did not have to include the support amounts. The signature closely resembles that on Exhibit A-2.
[15] At the hearing, the appellant referred to a notice of objection which she had purportedly filed and to reassessments in her favour, as well as to the reassessments under appeal herein. As the Reply made no mention of this intermediate phase, I asked the appellant to send me those documents. Counsel for the respondent did not appear to know what it was all about either. The appellant sent me documents establishing the existence of reassessments dated January 25, 2001. Those assessments exclude the support amount.
[16] Through the Registry of this Court, I then asked counsel for the respondent to explain to me why those reassessments had been made and subsequently varied. By letter dated May 1, 2002, counsel thereupon gave me a full explanation of the case, which I think it useful to reproduce below:
[TRANSLATION]
. . .
The purpose of this letter is to answer Judge Lamarre Proulx's question in the case cited above. The question as you have sent it to me is:
Why does the reply to the notice of appeal not address either the appellant's allegations in the second paragraph of her notice of appeal or the matter of the support amounts excluded from the computation of the appellant's income for the years in issue and shown on the notices of reassessment dated January 25, 2001?
The appellant had not included the support she received in her income tax returns for 1997, 1998 and 1999. By notice of reassessment dated May 1, 2000, the amounts of support she did not report were added in computing her income for the three years in issue.
The appellant objected to this reassessment on August 23, 2000. Her representations were to the effect that she had an agreement with her former spouse under which he undertook not to deduct the amounts of support he paid in computing his income. It was then that the appellant sent the Canada Customs and Revenue Agency (CCRA) an election form relating to the new tax measures concerning child support, which she claims was signed by both spouses on October 29, 1997. The election form that the appellant sent was the provincial form, accompanied by a note signed by her former spouse (Mr. Nault) certifying that he undertook not to deduct the support paid for his children in computing his income. Despite the irregularities of those documents, the Chief of Appeals was prepared to accept them if they reflected the intention of the parties.
Following these representations, the appellant was reassessed on January 4, 2001, with the support being excluded from the calculation of her income. Consequently, her former spouse was also reassessed, on January 22, 2001, and the deduction of the support paid for the years in issue was disallowed.
The appellant's former spouse objected to his reassessment, arguing in particular that he had an order dated December 13, 1996, specifying the amount of support he was to pay and providing that those amounts would be deductible in computing his income. When confronted with the allegation that he had entered into an agreement with his former spouse, Mr. Nault denied that he had signed any document at all.
Faced with this contradictory information, the Chief of Appeals concluded that he had to rely on the document with the greatest probative value in making a decision. Since the former spouse denied that he had signed the election form and the agreement, and the election form was the provincial one, the order dated December 13, 1996, was the most probative document.
Consequently, the appellant was reassessed on June 28, 2001, so as to include the support in computing her income, and the former spouse was reassessed on the same date so as to allow the deduction of the support paid.
In view of the above, the reply to the notice of appeal does not deal with the second paragraph of the notice of appeal or with the notices of assessment dated January 25, 2001, submitted by the appellant, since the appeal before the Tax Court of Canada results from the appellant's last assessment, that of June 28, 2001.
. . .
Argument
[17] Counsel for the respondent argued that the order under which the payments were made dated from before May 1997 and that the inclusion/deduction regime thus applied. She referred to the decision of this Court in Kovarik v. Canada, [2001] T.C.J. No. 181 (Q.L.), paragraphs 8 and 9:
Under what I may describe as the old régime (pre May 1997) spouses making payments to separated or ex spouses for the support of children could deduct those payments and the recipient had to include them in income. Following the decision of the Supreme Court of Canada in Thibaudeau v. Canada, [1995] 2 S.C.R. 627, the legislation changed. So long as a pre May 1997 agreement remained unchanged the deduction/inclusion system under the old régime prevailed.
If a new agreement were entered into, or an old agreement was changed in a particular way, the deduction/inclusion régime ceased and only payments made up to the "commencement day", as defined, were deductible by the payor and includible by the payee.
[18] Counsel argued that it is hard to believe the appellant's former spouse would have signed the documents filed by the appellant as Exhibits A-2 and A-3 without the advice of a lawyer or without another court order. Relations between the appellant and her former spouse are strained and acrimonious, and it is implausible that those relations would have been so friendly on October 29, 1997 as to permit the signing of such a document.
Conclusion
[19] Contrary to what counsel for the respondent suggests in the last paragraph of her letter cited in paragraph 16 of these reasons, I believe that all the facts relating to and useful in understanding an assessment must be set out in the Reply. It is on the basis of that Reply that the Court can decide on the complexity of an appeal. This avoids confusion at the time of the hearing and allows the right decisions to be made in the handling of the case prior to the hearing. In this case, for example, a few days before the hearing, a lawyer newly retained by the appellant requested that the hearing be postponed so that he could review the case, a motion which the Court denied. That request was not repeated at the hearing, and the appellant represented herself. Would the Court's decision have been the same if all the facts had been related?
[20] It was impossible to determine from the Reply that the issue would be whether the payer of the support actually signed one or more documents concerning the joint election for the application of the new tax measures pertaining to child support paid, which election is provided for in subsection 56.1(4) of the Act. The facts concerning the reassessments of January 2001 were important. A description of them would have drawn the Court's attention to the real point at issue, namely the authenticity of Exhibit A-2, and would thus have permitted a full and informed debate on both the facts and the law.
[21] I now return to the more specific facts of this appeal. It is true that, under the order of December 13, 1996 (Exhibit A-1), the support is calculated on the basis of the tax effects of its inclusion in income. That same order, however, fixed the amount of support at $1,500 a month. The appellant received $5,575 in 1997. According to her notice of objection filed as Exhibit A-3, she did not receive the first cheque until October 20, 1997. The agreement entered into with her former spouse on October 27, 1997, that she not report that amount and that he not claim a deduction in respect of it is thus somewhat plausible.
[22] Furthermore, the appellant testified that Mr. Nault had signed the document in question because, in any case, he was not reporting his income at the time and was not deducting the support. This appears to be corroborated by Mr. Nault's tax returns. No such deduction was claimed in the 1996 return. The claim was very explicitly made in the others, but these returns were all filed late, on March 8, 2000, long after October 27, 1997. The first notices of reassessment were subsequently sent to the appellant on May 1, 2000.
[23] As it is somewhat plausible that the agreement of October 27, 1997, is authentic, and as the Reply failed to fulfil its function of establishing the facts relevant to an assessment, so that an appropriate legal debate consequently could not be conducted, it is my view, in the circumstances, that the appeals must be allowed.
Signed at Ottawa, Canada, this 6th day of June 2002.
[OFFICIAL ENGLISH TRANSLATION]
"Louise Lamarre Proulx"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
2001-3626(IT)I
BETWEEN:
HUGUETTE PAYETTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on March 12, 2002, at Ottawa, Ontario, by
the Honourable Judge Louise Lamarre Proulx
Appearances
For the Appellant: The Appellant herself
Counsel for the Respondent: Marlyse Dumel
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1997, 1998 and 1999 taxation years are allowed, without costs, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 6th day of June 2002.
|
"Louise Lamarre Proulx" |
J.T.C.C.