[OFFICIAL ENGLISH TRANSLATION]
1999-1632(IT)I
BETWEEN:
ROBERT KINGSBURY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on March 13, 2000, at Ottawa, Ontario, by
the Honourable Judge Lucie Lamarre
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Cathy Chalifour
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1993, 1994 and 1995 taxation years are dismissed.
Signed at Ottawa, Canada, this 15th day of March 2000.
|
"Lucie Lamarre" |
J.T.C.C.
Translation certified true
on this 28th day of February 2001.
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20000315
Docket: 1999-1632(IT)I
BETWEEN:
ROBERT KINGSBURY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre, J.T.C.C.
[1] These are appeals under the informal procedure from assessments made by the Minister of National Revenue ("Minister") under the Income Tax Act ("Act") for the 1993, 1994 and 1995 taxation years. In computing his income for each of those years, the appellant deducted an amount of $9,188 as alimony paid to his former spouse, Janet Charron. The Minister disallowed that entire alimony deduction. In making the assessments, the Minister relied on the following facts stated in paragraph 6 of the Reply to the Notice of Appeal:
[TRANSLATION]
(b) the appellant and his former spouse began divorce proceedings in November 1992;
(c) under an interim judgment ("judgment") of August 31, 1993, the Superior Court, Family Division ("Court") ordered the appellant to pay the following amounts directly to the creditors concerned:
(i) mortgage payments;
(ii) municipal and school taxes;
(iii) insurance on the family residence;
(iv) any penalties and interest that may result from late payment; and
(v) major and/or essential repairs to the family residence, with the appellant's consent;
(d) the judgment does not state that the amounts paid may at all times be used at the former spouse's discretion;
(e) the amounts payable stipulated in subparagraph 4 above do not constitute an allowance within the meaning of subsection 56(12) of the Income Tax Act ("Act"); and
(f) the judgment does not expressly provide that the amounts paid referred to above will be deductible under subsection 60.1(2) or that the former spouse will receive the said amounts as an allowance payable on a periodic basis under subsection 56.1(2) of the Act.
[2] The appellant filed in evidence an interim relief agreement respecting alimony (Exhibit A-1) and an interim relief judgment (Exhibit A-2), both dated August 31, 1993. The terms of the agreement (Exhibit A-1) read as follows:
[TRANSLATION]
Interim relief agreement
respecting alimony
Upon application by the respondent for interim relief;
Upon judgment pronounced by the Honourable Judge Jean Dagenais awarding custody of the children (3) to the respondent and reserving her recourse for alimony;
Upon the application being set down again for hearing to determine alimony;
Considering the applicant's low income;
The parties agree to the following:
In lieu of alimony, the applicant shall make, directly to the creditors concerned, the following payments in respect of the family residence:
(a) the weekly mortgage payment;
(b) payment of municipal and school taxes and insurance on the family home on their respective due dates;
(c) any penalty and/or interest that may result from late payment;
(d) major and/or essential repairs, with the applicant's consent.
The applicant shall pay any arrears that may have accumulated as of August 31, 1993 in respect of the payments enumerated in paragraph 1.
The respondent will be authorized to obtain from the creditors concerned confirmation that the payments have been duly made and/or written confirmation of any arrears.
Should there be arrears, the respondent may collect them directly from the applicant in the same manner as any alimony in order to be able to make any payment in default herself.
It is understood that these provisions may in no way affect the settlement of financial interests.
[3] The interim relief judgment (Exhibit A-2) reads as follows:
[TRANSLATION]
JUDGMENT
This is an application for interim relief respecting alimony.
Considering the agreement filed in the Court record;
FOR THESE REASONS, THE COURT:
ORDERS the applicant, on an interim basis, to pay, in lieu of alimony, the following amounts in respect of the family residence, the said amounts being payable directly to the creditors concerned:
(a) the weekly mortgage payment;
(b) payment of municipal and school taxes and insurance on the family home on their respective due dates;
(c) any penalty and/or interest that may result from late payment;
(d) major and/or essential repairs, with the applicant's consent.
ORDERS the applicant to pay any arrears that may have accumulated as of August 31, 1993 in respect of the payments enumerated above;
FORMALIZES the agreement reached between the parties on August 31, 1993 and orders the parties to comply therewith;
WITHOUT COSTS.
[4] In accordance with these two documents the appellant paid directly to the various creditors, on a weekly basis, a total amount of $9,188 in each of the years 1993, 1994 and 1995. The point at issue is whether those amounts paid to the various creditors are deductible in computing the appellant's income for each of those years. The appellant submits that the payments were in lieu of alimony according to the interim relief judgment. Accordingly, in his view, they should be deductible under the Act.
Analysis
[5] During the years in issue, the relevant sections of the Act read as follows:
SECTION 56: Amounts to be included in income for year.
456(12)3
(12) Definition of "allowance". 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.
SECTION 60: Other deductions.
There may be deducted in computing a taxpayer's income for a taxation year such of the following amounts as are applicable:
460(b)3
(b) Alimony payments - an amount paid by the taxpayer in the year as alimony or other allowance payable on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and the children, if the taxpayer, because of the breakdown of the taxpayer's marriage, was living separate and apart from the spouse or former spouse to whom the taxpayer was required to make the payment at the time the payment was made and throughout the remainder of the year and the amount was paid under a decree, order or judgment of a competent tribunal or under a written agreement;
460(c)3
(c) Maintenance - an amount paid by the taxpayer in the year as an allowance payable on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and the children, if
(i) at the time the amount was paid and throughout the remainder of the year the taxpayer was living separate and apart from the recipient,
(ii) the taxpayer is the natural parent of a child of the recipient, and
(iii) the amount was received under an order made by a competent tribunal in accordance with the laws of a province;
SECTION 60.1 : Maintenance payments.
(1) Where a decree, order, judgment or written agreement described in paragraph 60(b) or (c), or any variation thereof, provides for the periodic payment of an amount by a taxpayer
(a) to a person who is
(i) the taxpayer's spouse or former spouse, or
(ii) where the amount is paid under an order made by a competent tribunal in accordance with the laws of a province, an individual of the opposite sex who is the natural parent of a child of the taxpayer, or
(b) for the benefit of the person, children in the custody of the person or both the person and those children,
the amount or any part thereof, when paid, shall be deemed for the purposes of paragraphs 60(b) and (c) to have been paid to and received by that person.
460.1(2)3
(2) Agreement. For the purposes of paragraphs 60(b) and (c), the amount determined by the formula
A - B
where
A is the total of all amounts each of which is an amount (other than an amount to which paragraph 60(b) or (c) otherwise applies) paid by a taxpayer in a taxation year, under a decree, order or judgment of a competent tribunal or under a written agreement, in respect of an expense (other than an expenditure in respect of a self-contained domestic establishment in which the taxpayer resides or an expenditure for the acquisition of tangible property that is not an expenditure on account of a medical or education expense or in respect of the acquisition, improvement or maintenance of a self-contained domestic establishment in which the person described in paragraph (a) or (b) resides) incurred in the year or the preceding taxation year for maintenance of a person who is
(a) the taxpayer's spouse or former spouse, or
(b) where the amount is paid under an order made by a competent tribunal in accordance with the laws of a province, an individual of the opposite sex who is the natural parent of a child of the taxpayer,
or for the maintenance of children in the person's custody or both the person and those children if, at the time the expense was incurred and throughout the remainder of the year, the taxpayer was living separate and apart form that person, and
B is the amount, if any, by which
(a) the total of all amounts each of which is an amount included in the total determined for A in respect of the acquisition or improvement of a self-contained domestic establishment in which that person resides, including any payment of principal or interest in respect of a loan made or indebtedness incurred to finance, in any manner whatever, such acquisition or improvement
exceeds
(b) the total of all amounts each of which is an amount equal to 1/5 of the original principal amount of a loan or indebtedness described in paragraph (a),
shall, where the decree, order, judgment or written agreement, as the case may be, provides that this subsection and subsection 56.1(2) shall apply to any payment made thereunder, be deemed to be an amount paid by the taxpayer and received by that person as an allowance payable on a periodic basis.
[6] Under subsection 60.1(1), where the interim relief judgment provides for the periodic payment of an amount by a taxpayer for the benefit of the taxpayer's former spouse or children in the former spouse's custody, that amount shall be deemed for the purposes of paragraphs 60(b) and (c) to have been paid to and received by the former spouse.
[7] However, in The Queen v. Armstrong, [1996] F.C.J. No. 599 (Q.L.), the Federal Court of Appeal held that payments made directly to third parties can only be deductible if the requirements of subsection 60.1(2) are met. Moreover, Stone J.A. clearly stated in Armstrong that subsection 60.1(2) cannot be relied on as a basis for allowing the deduction of amounts thus paid where the order, judgment or written agreement, as the case may be, does not provide that subsections 60.1(2) and 56.1(2) apply to any payment made under that document. This interpretation is justified by one of the objectives of that subsection, which is to confirm that both parties know that such a judgment, order or agreement has tax consequences (see Mambo v. The Queen, [1995] T.C.J. No. 931 (Q.L.)).
[8] In the instant case, no reference is made in the judgment to subsections 60.1(2) and 56.1(2) of the Act or to the tax treatment of the amounts to be paid by the appellant. The appellant therefore cannot rely on subsection 60.1(2) to argue that the amounts paid to third parties are deductible.
[9] Furthermore, contrary to what I emphasized at the hearing, I do not believe that this situation is similar to that in The Queen v. Arsenault, [1996] F.C.J. No. 202 (Q.L.). In that case, the majority in the Federal Court of Appeal held that payments in the form of cheques made out to a third party but handed over to the former spouse to be given to the third party in payment of alimony provided for in an order and a separation agreement could be deducted under paragraph 60(b) of the Act. The Federal Court of Appeal so held because, on the facts, the former spouse had retained the discretionary power to decide how the sum of money was to be paid. Indeed, the separation agreement provided that the husband was to pay his spouse, from whom he was separated, alimony of $400 a month and a maintenance allowance of $100 a month for each of the three children. Instead of paying his spouse directly, the husband made out the rent cheques to the landlord and handed them over to his spouse. These amounts thus replaced the alimony provided for in the separation agreement. However, it was clear that, rather than accept the cheques, the spouse could have insisted that the payments be made to her directly. Under the separation agreement, she was legally entitled to require that payment be made to her rather than to the landlord. She thus had discretion over the payments.
[10] The instant case differs from Arsenault since, under the agreement and judgment, the appellant was required to pay the creditors concerned directly. Unlike the spouse in Arsenault, the appellant's former spouse could not legally require that the payments be made directly to her rather than to third parties. Moreover, if the appellant was in default, his former spouse could claim the appropriate amounts from him so that she herself could make any payment with respect to which the appellant had defaulted. Thus she could not use these amounts for other purposes. Although the judgment states that these amounts payable by the appellant to third parties are in lieu of alimony, the former spouse nevertheless had no discretion over their use, as a consequence of which they cannot be characterized as an allowance within the meaning of subsection 56(12) of the Act.
[11] For these reasons, I can only conclude that the appellant could not deduct an amount of $9,188 as alimony from his income for each of the 1993, 1994 and 1995 taxation years since the conditions set out in paragraphs 60(b) and (c) and subsections 56(12), 60.1(1) and 60.1(2) of the Act were not met.
[12] The Minister's assessments are therefore correct and the appeals are dismissed.
Signed at Ottawa, Canada this 15th day of March 2000.
|
"Lucie Lamarre" |
J.T.C.C.
Translation certified true
on this 28th day of February 2001.
Erich Klein, Revisor