Date: 20020801
Docket: 2002-158-IT-I
BETWEEN:
KAREN BOLT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
O'Connor, J.T.C.C.
[1] The issue in this appeal is whether the Appellant must include in her taxable income an amount of $17,683 in the 1999 taxation year, which amount represents child support payments paid to her by her former spouse, Robert Brian Campbell, ("Former Spouse").
[2] References were made in the Notice of Appeal and the Reply to the Notice of Appeal to the 1997 and 1998 taxation years dealing with the same issue. However, neither of those years were properly before the Court for the following reasons.
[3] With respect to 1997 the Appellant had applied to this Court for an extension of time to file a Notice of Appeal but this application was dismissed because the application was filed too late. The Order of this Court dismissing that application was signed on July 15, 2002.
[4] With respect to 1998, the assessment for that year was a nil assessment and since, as a general rule, there can be no appeal to this Court with respect to a nil assessment, the 1998 year is not before this Court.
[5] The Reply to the Notice of Appeal made the following assumptions of fact in paragraph 14:
a) the Appellant and her former spouse, namely Robert Brian Campbell (the "Former Spouse") married on October 1, 1977 and separated on or about November 7, 1991;
b) at all relevant times, the Appellant and the Former Spouse were living separate and apart;
c) at all relevant times, the Appellant and the Former Spouse had two children, namely Brian John Campbell born April 22, 1980 and Jennifer Ellen Campbell born April 18, 1982;
d) pursuant to a separation agreement dated March 23, 1995 (the "Agreement"), the Former Spouse was required to pay $600.00 bi-weekly to the Appellant with respect to the Children subject to indexing related to the Former Spouse's salary and said payments commenced on May 1, 1995;
e) on May 5, 1997, the Appellant attended the Ontario Court (Provincial Division) and filed the Agreement with the Ministry of the Attorney General of Ontario, Office of the Director of the Family Support Plan;
f) the amount of child support payable by the Former Spouse was withheld from his salary and remitted to the Appellant under the terms of the Family Support Plan referred to in subparagraph 14(e) herein;
g) the Appellant and Former Spouse did not complete, sign and file form T1157 - ELECTION FOR CHILD SUPPORT PAYMENTS;
h) the purpose of the form referred to in subparagraph 14(g) herein is to elect to have child support payments made under a court order or separation agreement entered into before May 1, 1997 be not taxable to the recipient and not deductible to the payer;
i) the action taken by the Appellant as stated in subparagraph 14(e) herein did not result in or otherwise constitute a variance in the quantum of child support paid pursuant to the Agreement; and
j) the Former Spouse paid and the Appellant received child support in the amount of ... $17,683.00 for the 1999 taxation year.
ANALYSIS
[6] The Appellant's main ground of appeal is stated in the Notice of Appeal as follows:
The main reason for my appeal is that the taxation of child support laws changed on May 1st, 1997. It is and was my understanding that because I already had a written agreement with my ex-husband for child support that the only way the new rules would apply to my situation was to go to court and my agreement changed.
I proceeded to file in court for this change. I went to court on the day of the hearing and was told by the Judge that because my ex-husband was notified and chose not to appear in court that my current agreement was okay and that the new rules could apply to it. He said that because it was a written agreement between the two of us and it had never been filed in a court of law, all I needed to do to have the new rules apply was to file the agreement with the court. He said once it was filed with the court it was then considered a "new agreement" and the new rules regarding taxation of child support would apply to it. I understood this and believed it to be fact.
I filed the agreement with the court on May 5th, 1997 and thought that to be the end of it. ...
[7] The separation agreement between the Appellant and the former spouse was dated March 23, 1995 and was filed as Exhibit R-1. For the purposes of this appeal its principal provision is paragraph 5 which reads as follows:
Commencing May 1st, 1995 Bob shall pay to Karen for the support of the children the sum of $300.00 per child bi-weekly (total $600.00 bi-weekly) payable in the case of each child until the earliest of the following times:
(a) the child becomes 18 years of age and ceases to be in full time attendance at the educational institution (normal vacations and work periods in connection with school are not to be interpreted as ceasing to be in full time attendance at school).
(b) the child attains the age of 24 years;
(c) the child attains his or her first post secondary degree or diploma;
(d) the child marries;
(e) the child dies.
[8] A succinct summary of the applicable provisions of the Income Tax Act (the "Act") is contained in Volume 2 of CCH Canadian Tax Reporter (at page 9058 and following):
Payments made for child and spousal support were previously included in the recipient's income under former paragraph 56(1)(b) or (c), and such payments were previously deductible from income for the payer under paragraph 60(b) or 60(c). The "inclusion-deduction" system in respect of child support payments was challenged in The Queen v. Thibaudeau, 95 DTC 5273 (SCC). In that case, the taxpayer argued that the system violated her right to equality under section 15 of the Charter of Rights and Freedoms, because it imposed a burden on her which was not imposed on other individuals who were not divorced or separated custodians of their children.
The Supreme Court of Canada allowed the Crown's appeal and upheld the constitutionality of the inclusion/deduction system for child support payments under former paragraphs 56(1)(b) and (c) and 60(b) and 60(c). However, strong lobbying from various groups persuaded the government to study the area with the view of amending the system. That study culminated in an announcement in the 1996 federal budget that the old system of taxation of child support payments was to be replaced by a new system of non-taxation. Under the new system, child support payments would not be deductible to the payer nor included in the recipient's income.
Accordingly, under the current rules found in paragraphs 56(1)(b) and 60(b), child support payments are neither included in the recipient's income nor deductible to the payer. The current rules apply after 1996, and affect child support amounts payable after April, 1997. The current rules apply to all child support payments made pursuant to court orders or written agreements made after April, 1997. For orders or agreements made before May, 1997, the previous inclusion/deduction generally applies, but the current system applies where
(1) the payer and recipient file a joint election stating that the current rules are to apply to payments made after a specified dated after April, 1997;
(2) the agreement or order is varied after April, 1997, or another order or agreement made after April 30, 1997, which changes the amount of child support provided in the original order or agreement; or
(3) the order or agreement specifies that the current rules will apply to payments made after a specified date after April, 1997.
...
"Support amount" is defined in subsection 56.1(4). It means an amount which is an allowance payable on a periodic basis for the maintenance of the recipient, children of the recipient, or both the children and the recipient, where the recipient has discretion as to the use of the amount, and either
(a) the recipient and payer are spouses or common-law partners or former spouses or common-law partners living separate and apart because of the breakdown of their marriage or common-law partnership, and the amount is receivable under an order of a competent tribunal or under a written agreement; or
...
"Child support amount" is defined in subsection 56.1(4), and is basically any support amount that is not identified in the agreement or order as being solely for the support of the spouse, common-law partner or parent (the "recipient"). Therefore, if an order or agreement provides for support for both the recipient and children but does not identify which amount is for the benefit of the recipient, the entire support amount is considered a child support amount.
[9] In my opinion the assumptions contained in the Reply and quoted above have not been proven to be untrue and the legal analysis contained in those assumptions is correct. The Separation Agreement is dated before May 1, 1997 and none of the three conditions cited above which would cause the current system to apply exist. Moreover, it is clear that the child support payments provided for in the Separation Agreement are clearly contemplated in subsection 56(1)(b). The registering of the Agreement with the Ontario Court (Provincial Division) and the filing of the Agreement with the Ministry of the Attorney General of Ontario, Office of the Director of the Family Support Plan do not operate to change the date of the Agreement nor to make the post April 1997 rules applicable.
[10] For all of the above reasons the Appeal is dismissed.
Signed at Ottawa, Canada, this 1st day of August, 2002.
"T. O'Connor"
J.T.C.C.
COURT FILE NO.: 2002-158(IT)I
STYLE OF CAUSE: Karen Bolt v. The Queen
PLACE OF HEARING: Belleville, Ontario
DATE OF HEARING: July 4, 2002
REASONS FOR JUDGMENT BY: The Honourable Judge T. O'Connor
DATE OF JUDGMENT: August 1, 2002
APPEARANCES:
Counsel for the Appellant: The Appellant herself
Counsel for the Respondent: Marlyse Dumel
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2002-158(IT)I
BETWEEN:
KAREN BOLT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on July 4, 2002 at Belleville, Ontario, by
the Honourable Judge Terrence O'Connor
Appearances
For the Appellant: The Appellant herself
Counsel for the Respondent: Marlyse Dumel
JUDGMENT
The appeal from the reassessment made under the Income Tax Act for the 1999 taxation year is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 1st day of August, 2002.
|
"T. O'Connor" |
J.T.C.C.