Date: 20000627
Docket: 98-339-IT-G
BETWEEN:
RENÉE BADEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Garon, C.J.T.C.C.
[1] These are appeals from assessments by the Minister of National Revenue for the 1993 and 1994 taxation years. By those assessments, the Minister of National Revenue added to the appellant's income, in respect of alimony, the amounts of $33,000 for the 1993 taxation year and $13,300 for the 1994 taxation year, according to the notice of confirmation of December 9, 1997. In making these assessments, the Minister of National Revenue relied on paragraph 56(1)(b) of the Income Tax Act (the "Act").
[2] The parties agreed at the hearing of these appeals that the amounts in issue were $16,200 for 1993 and $5,000 for 1994. Further explanations respecting the calculation of the amounts in question are provided below.
[3] A [TRANSLATION] "Partial Agreement on the Facts" filed at the start of the hearing reads as follows:
[TRANSLATION]
1- On October 30, 1992, the Superior Court rendered in divorce proceedings an interim judgment on the application for interim relief, as appears from the copy of the judgment filed in support hereof as Exhibit P-1;
2- The appellant was sole owner of the immovable located at 303 Howard Street in Sherbrooke;
3- At the time of the divorce proceedings, there was a $95,000 first mortgage on the residence at 303 Howard Street in Sherbrooke;
4- At the time of the divorce proceedings, there was also an $80,000 second mortgage on the residence at 303 Howard Street in Sherbrooke; that mortgage had been granted by the appellant as security for a loan taken out by her former spouse which she had personally guaranteed, as appears from a copy of the notarial deed filed in support hereof as Exhibit P-2;
5- The costs related to the family home such as mortgage payments, taxes, insurance, heating and electricity totalled at least $1,500 but not more than $1,800 a month; the amount of the mortgage was $1,048 a month, the heating and electricity at least $320 a month, taxes $234 a month and insurance $92 a month; these amounts were received by pre-authorized monthly payment directly from the appellant's bank account no. 208104 at the Caisse d'Économie des Cantons;
6- The amounts paid to the appellant during the 1993 taxation year in accordance with the judgment (Exhibit P-1) totalled $33,000; during the 1993 taxation year, a monthly amount of $2,750 was paid to the appellant by her former spouse directly into her bank account no. 208104 at the Caisse d'Économie des Cantons;
7- On September 14, 1993, the Superior Court rendered judgment on an application by the appellant's former spouse, as appears from the judgment filed in support hereof as Exhibit P-3;
8- On December 15, 1993, the appellant and her former spouse signed an agreement on corollary relief;
9- On January 13, 1994, the Superior Court received, approved and gave force and effect to the said agreement, as appears from the judgment and accompanying documents filed together as Exhibit P-4;
10- In a judgment dated August 2, 1994, the Superior Court ruled in particular that the alimony and seizures were suspended, as appears from the judgment filed in support hereof as Exhibit P-5;
11- On October 27, 1994, the Superior Court ordered the appellant's former spouse to pay the appellant the sum of $250 a month per child as of May 1, 1994, as appears from the judgment filed in support hereof as Exhibit P-6;
12- The appellant in fact received the sum of $13,300 from her former spouse during the 1994 taxation year;
13- On February 24, 1995, the Superior Court approved the parties' agreement signed on February 16, 1995 and ordered them to comply with it, as appears from the judgment filed in support hereof as Exhibit P-7;
14- The appellant filed income tax returns for the 1993 and 1994 taxation years, as appears from the copies of the returns filed together as Exhibit P-8;
15- On or around November 29, 1996, the appellant filed with the Minister of National Revenue an amended income tax return for 1993 in which she characterized the sum of $16,800 as income from alimony or other allowance payable on a periodic basis, as appears from the copy of the return filed in support hereof as Exhibit P-9;
16- On or around November 29, 1996, the appellant filed with the Minister of National Revenue an amended income tax return for the 1994 taxation year in which she characterized the sum of $8,300 as income from alimony or other allowance payable on a periodic basis, as appears from the copy of the return filed in support hereof as Exhibit P-10;
17- By notices of reassessment dated April 24, 1997, the Minister of National Revenue added to the appellant's income the amounts of $33,000 and $13,300 as income from alimony or other allowance payable on a periodic basis for her 1993 and 1994 taxation years respectively, as appears from the copies of the notices of reassessment filed in support hereof as Exhibit P-11;
18- On or around July 3, 1997, the appellant filed a notice of objection in respect of the reassessments referred to in the previous paragraph, as appears from the copy of the notice of objection filed in support hereof as Exhibit P-12;
19- By notice of confirmation dated December 9, 1997, the Minister of National Revenue confirmed the reassessments, as appears from the copy of the notice of confirmation filed in support hereof as Exhibit P-13.
[4] The judgment granting the divorce of the appellant and Charles L. Mitnyan is dated January 13, 1994 and became absolute 31 days later.
[5] The Court had the benefit of hearing the testimony of the appellant, who was the only witness called at the hearing. Her testimony provided some clarification as to her financial circumstances and those of her former spouse during both the period in issue and the years before and after that period which were close to it.
[6] A book of 13 exhibits as well as a divorce judgment dated January 13, 1994 and a mortgage security document dated November 21, 1990 and signed by the appellant in favour of the Hongkong Bank of Canada were filed in evidence.
[7] The documentary evidence reveals that in [TRANSLATION] "amended returns" dated November 29, 1996, the appellant added to her income, as alimony, the amounts of $16,800 for the 1993 taxation year and $8,300 for the 1994 taxation year. In including the amounts of $33,000 for 1993 and $13,300 for 1994 in the appellant's income as alimony, the Minister of National Revenue in fact added to her income in that respect only the amounts of $16,200 for the 1993 taxation year and $5,000 for the 1994 taxation year. These amounts represent the expenses related to the family home described in a judgment of the Superior Court of Quebec dated October 30, 1992, which is discussed more fully below.
Analysis
[8] The point for determination is thus whether the amounts of $16,200 and $5,000 representing certain expenses relating to the family home, which were received by the appellant during the 1993 and 1994 taxation years as alimony must be included in her income for the taxation years in question.
[9] As the payments totalling $16,200 were made to the appellant by her former spouse during the 1993 taxation year under a judgment dated October 30, 1992, paragraph 56(1)(b) of the Act, as it read prior to the amendment made by subsection 17(1), Schedule VIII, Chapter 7 of the Statutes of Canada, 1994, applies. The amendment applies solely to amounts received under an order or judgment made after 1992.
[10] Paragraph 56(1)(b) of the Act applicable to the amounts received by the appellant in 1993 read as follows:
Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,
. . .
(b) any amount received by the taxpayer in the year, pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written agreement, as alimony or other allowance payable on a periodic basis for the maintenance of the recipient thereof, children of the marriage, or both the recipient and children of the marriage, if the recipient was living apart from, and was 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.
[11] The parties admitted that all the conditions set by paragraph 56(1)(b) were met in the instant case, except the condition that the amounts be received as an allowance.
[12] To determine whether the amounts were an allowance, the Court must consider subsection 56(12), which reads as follows:
Subject to subsections 56.1(2) and 60.1(2), for the purposes of paragraphs (1)(b), (c) and (c.1) (in this subsection referred to as the "former paragraphs") and 60(b), (c) and (c.1) (in this subsection referred to as the "latter paragraphs"), "allowance" does not include any amount that is received by a person, referred to in the former paragraphs as "the taxpayer" and in the latter paragraphs as "the recipient", unless that person has discretion as to the use of the amount.
[13] The point at issue with respect to the 1993 taxation year may therefore be narrowly stated as follows: Did the appellant have discretion as to the use of the amount of $16,200, representing expenses relating to the family home, which was paid to her by her former spouse in 1993?
[14] To answer this question, the part of the judgment of October 30, 1992 requiring the former spouse to pay the appellant the amounts in question must be analyzed. The text of the operative part of that judgment reads as follows:
[TRANSLATION]
ORDERS the respondent to pay the applicant, for her children, monthly alimony of $2,750, with the applicant being required to pay the household expenses, including mortgage, heating, tax, electricity and other payments; this amount shall be deposited on the first of each month to the applicant's bank account, no. 208104, at the Caisse d'Économie des Cantons.
[15] The scope of subsection 56(12) of the Act has been considered by the courts on numerous occasions. In this regard, I would like to refer to the decision by Judge Dussault of this Court in Hamer v. Canada, [1997] T.C.J. No. 791, confirmed by the Federal Court of Appeal, which adopted the trial judge's reasons. In Hamer, the appellants disputed the inclusion in their income of amounts received as alimony solely for the benefit or maintenance of their children. In view of the restriction requiring that the amounts received had to be used solely for the children's benefit, the appellants contended that these amounts did not belong to them and that they had no discretion as to their use within the meaning of subsection 56(12) of the Act.
[16] The following comments by Judge Dussault in that judgment are particularly apposite:
16 Section 56(1)(b) relates specifically to an amount received by a spouse or former spouse "as alimony or other allowance payable on a periodic basis for the maintenance of the recipient thereof, children of the marriage, or both the recipient and children of the marriage" provided the other conditions stated in the paragraph are met. Paragraphs (c) and (c.1) cover similar payments in different circumstances. Nothing in these provisions requires that the spouse or former spouse receiving amounts for the benefit or maintenance of children in his or her custody be the owner or be himself or herself the creditor of the alimony. The Civil Code of Quebec provides that proceedings for the support of a minor child may be instituted by the holder of parental authority and that the alimony or allowance may be ordered payable to the person who has custody of the child. The Divorce Act also provides that the spouse or former spouse may apply to a tribunal for a support order for dependent children. Certainly, an alimony or an allowance paid pursuant to a judgment or order for the maintenance of children only gives a spouse or former spouse receiving it authority to use it in his or her discretion while achieving its ultimate purpose, unless the judgment or order makes some other provision by indicating or specifying the purpose to which it must be allocated or how it should be used for the children's benefit. The usual and consistent interpretation of s. 56(12) in its context leads to the conclusion that the purpose of adopting it was simply to exclude from the word "allowance" for the purposes of s. 56(1)(b), (c) and (c.1) and corresponding paragraphs of s. 60 any amount the use of which was specified in this way, with the obvious consequence of substituting the payer's wishes for the free will of the recipient as to the manner in which the money should be used. I do not think that s. 56(12) can be given a wider meaning, the effect of which would be to neutralize the application of s. 56(1)(b), (c) and (c.1) and of the corresponding paragraphs of s. 60 simply because an alimony or allowance is paid for the maintenance of children only.
[The references in brackets to certain footnotes appearing in this judgment have been omitted.]
[17] In light of this judgment, it seems undeniable that amounts received by a taxpayer which meet the conditions set by paragraph 56(1)(b) constitute allowances within the meaning of subsection 56(12) if those amounts fall within the framework of the general purpose stated in paragraph 56(1)(b) of the Act and if no clarification is made or restriction specified as to their use. In such a case, the taxpayer is considered for the purposes of subsection 56(12) as having discretion as to the use of those amounts.
[18] Considering the paragraph cited above, in paragraph 14 of these reasons, taken from the judgment of October 30, 1992, and having regard to the above observations, it may be seen that a relationship is established in that paragraph between the obligation imposed on the former spouse to pay the appellant monthly alimony of $2,750 for her children and the appellant's obligation to pay the expenses relating to the family home that are described in that paragraph. In view of this obligation imposed on the appellant to pay the said expenses, I find that the appellant did not have discretion as to the use of the portion of the monthly payments of $2,750 made pursuant to the judgment of October 30, 1992, which went to pay those expenses. Payment of the expenses relating to the family home was the only purely financial obligation imposed on the appellant by the judgment. The wording of the aforementioned paragraph from the judgment suggests that the appellant's obligation to pay the expenses in question is to a certain degree the counterpart of the former spouse's obligation to make the monthly payments of $2,750. It is particularly significant that the expense amounts relating to the family residence paid by the appellant in 1993 were taken by direct debit from the appellant's account into which the amounts were paid by her former spouse, as appears from paragraphs 5 and 6 of the "Partial Agreement on the Facts".
[19] As to the amount of $5,000 received during the 1994 taxation year, reference must be made to the divorce judgment of January 13, 1994 by the Superior Court of Quebec. Clause 2 at page 3 of the [TRANSLATION] "Agreement on Corollary Relief" dated December 15, 1993, confirmed by that judgment, reads as follows:
[TRANSLATION]
The respondent shall pay the applicant for the children Manuel, Erika and Coralie monthly alimony of $2,400.00 payable on the first of each month, starting January 1, 1994, into the applicant's bank account no. 208104 at the Caisse d'Économie des Cantons.
[20] That judgment applies solely to the payments made for the months of January to April inclusive of the 1994 taxation year in view of what is stated in the following paragraph of the Superior Court of Quebec's judgment of October 27, 1994:
[TRANSLATION]
THE COURT ISSUES THE FOLLOWING INTERIM ORDER, which DIRECTS the respondent and ORDERS HIM to pay the applicant, for the children, alimony of $250.00 a month per child, for as long as they live with her, as of May 1, 1994.
[21] As explained above, the appellant had full discretion as to the use of the amounts payable to her in respect of the first four months of 1994 in the context of the purpose indicated in paragraph 56(1)(b) of the Act. No restriction was imposed on the appellant requiring her to allocate the monthly payments to any particular expense or to a specific class of expenses. These payments thus constituted an allowance within the meaning of subsection 56(12) of the Act and must therefore be included in the appellant's income for the 1994 taxation year.
[22] There was no dispute between the parties with respect to the payments that had to be made to the appellant by the former spouse under the judgment of October 27, 1994 for the part of 1994 commencing on May 1 and ending on December 31.
[23] For these reasons, the appeal from the assessment for the 1993 taxation year is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the amount of $16,200 (which is part of a total of $33,000) received by the appellant during the 1993 taxation year should not be included in her income.
[24] The appeal from the assessment for the 1994 taxation year is dismissed.
[25] The appellant is entitled to her costs.
Signed at Ottawa, Canada, this 27th day of June 2000.
"Alban Garon"
C.J.T.C.C.
Translation certified true on this 28th day of September 2001.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
20000627
98-339(IT)G
BETWEEN:
RENÉE BADEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on August 18, 1999, at Drummondville, Quebec, by
the Honourable Chief Judge Alban Garon
Appearances
Counsel for the Appellant: Richard Généreux
Counsel for the Respondent: Anne-Marie Boutin
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1993 taxation year is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the amount of $16,200 (which is part of a total of $33,000) received by the appellant during the 1993 taxation year should not be included in her income.
The appeal from the assessment made under the Income Tax Act for the 1994 taxation year is dismissed.
The appellant is entitled to her costs.
Signed at Ottawa, Canada, this 27th day of June 2000.
|
"Alban Garon" |
C.J.T.C.C.
Translation certified true
on this 28th day of September 2001.
Erich Klein, Revisor