|
Docket: 2002-4586(IT)I |
|
BETWEEN: |
|
DAVID O'CONNOR, |
|
Appellant, |
|
and |
|
|
|
HER MAJESTY THE QUEEN, |
|
Respondent, |
|
and |
|
|
|
DIANNE STEPHANIE O'CONNOR, |
|
Added Party. |
____________________________________________________________________
Appeals heard on December 17, 2003, at Toronto, Ontario
|
By: The Honourable Justice E.A. Bowie |
||
|
Appearances: |
||
|
|
||
|
For the Appellant: |
The Appellant himself |
|
|
Counsel for the Respondent: |
Jason J. Wakely |
|
|
For the Added Party: |
Dianne Stephanie O'Connor |
|
____________________________________________________________________
AMENDED DETERMINATION OF QUESTIONS AND JUDGMENT
By Order dated August 14, 2003, Dianne Stephanie O'Connor was joined to the appeals of David O'Connor, for the purpose of determining the following questions:
1. Whether any amounts paid by David O'Connor to Dianne O'Connor were paid pursuant to a written agreement;
2. Whether any amounts paid by David O'Connor to Dianne Stephanie O'Connor are deductible against David O'Connor's income in respect of his 1997, 1998, 1999 and 2000 taxation years pursuant to paragraph 60(b) and subsections 60.1(1) and 60.1(2) of the Act; and
3. Whether any amounts paid by David O'Connor to Dianne Stephanie O'Connor ought be included in computing the income of Dianne Stephanie O'Connor's 1999 and 2000 taxation years in accordance with section 56 of the Act.
Upon hearing the Appellant, the Added Party and counsel for the Respondent;
The questions are answered as follows:
1. Some amounts paid after December 1997 may have been paid pursuant to a written agreement.
2. No amounts paid by David O'Connor to Dianne Stephanie O'Connor are deductible by David O'Connor in computing his income for 1997, 1998, 1999 or 2000.
3. No amount paid to her by David O'Connor ought to be included by Dianne Stephanie O'Connor in computing her income for 1997, 1998, 1999 or 2000.
The appeal from the assessment of tax made under the Act for the 1999 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 Appellant is entitled to tuition and education credits transferred to him, to be computed in accordance with the facts as set out in subparagraphs 7(i) and (j) of the Amended Reply to the Notice of Appeal, filed herein.
The appeals from assessments of tax made under the Act for the 1997, 1998 and 2000 taxation years are dismissed.
Signed at Ottawa, Canada, this 21st day of April, 2004.
|
"E.A. Bowie" |
Bowie J.
|
Citation: 2004TCC217 |
|
Date: 20040421 |
|
Docket: 2002-4586(IT)I |
|
BETWEEN: |
|
DAVID O'CONNOR, |
|
Appellant, |
|
and |
|
|
|
HER MAJESTY THE QUEEN, |
|
Respondent. |
AMENDED REASONS FOR JUDGMENT
Bowie J.
[1] These are informal appeals from assessments for income tax for the taxation years 1997, 1998, 1999 and 2000. By those assessments, the Appellant was denied the deductions that he claimed in respect of child support and spousal support for the years in question. On appeal to this Court, he limited his claims for support payments to $6,000 for each of the years in question, based upon a sum of $500 per month for the support of his younger son. He also claims tuition and education credits under sections 118.5 and 118.6 of the Income tax Act (the Act) transferred to him by his children under section 118.9 for the taxation year 1997.
[2] On the application of the Minister, the Appellant's former spouse, Dianne Stephanie O'Connor, was added as a party to the appeals under section 174 of the Act. The questions that I am to answer are:
1. Whether any amounts paid by David O'Connor to Dianne O'Connor were paid pursuant to a written agreement;
2. Whether any amounts paid by David O'Connor to Dianne Stephanie O'Connor are deductible against David O'Connor's income in respect of his 1997, 1998, 1999 and 2000 taxation years pursuant to paragraph 60(b) and subsections 60.1(1) and 60.1(2) of the Act; and
3. Whether any amounts paid by David O'Connor to Dianne Stephanie O'Connor ought be included in computing the income of Dianne Stephanie O'Connor's 1999 and 2000 taxation years in accordance with section 56 of the Act.
[3] During the course of the hearing, counsel for the Respondent conceded that the Appellant is entitled to the tuition and education credits that he claims, computed in accordance with the facts assumed by the Minister in assessing as they are set out in subparagraphs 7(i) and (j) of the Amended Reply to the Notice of Appeal, filed. Dianne O'Connor did not contest that entitlement. The Appellant's appeal for 1997 will be allowed, at least to that extent.
[4] I turn now to the contested issue, which is the Appellant's claim that he is entitled to deduct $6,000 in each of the years under appeal as a "child support amount" in accordance with paragraph 60(b) of the Act. That paragraph reads:
60 There may be deducted in computing a taxpayer's income for a taxation year such of the following amounts as are applicable:
(b) the total of all amounts each of which is 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 paid after 1996 and before the end of the year by the taxpayer to a particular person, where the taxpayer and the particular person were living separate and apart at the time the amount was paid,
B is the total of all amounts each of which is a child support amount that became payable by the taxpayer to 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 paid by the taxpayer to the particular person after 1996 and deductible in computing the taxpayer's income for a preceding taxation year;
[5] Mr. O'Connor and his wife separated in August 1996. They had two children, one of whom was 20, and the other 17. Mr. O'Connor made certain payments to Dianne O'Connor for the support of their younger son following their separation. He also made certain payments directly to their son for the same purpose. The evidence of Mr. O'Connor and Ms. O'Connor differs as to the extent of these payments, but I do not find it necessary to determine their extent. In my view, none of the payments that the Appellant made may be deducted from his income under the provisions of the Act. It is trite that an amount paid and received after 1996 for support of a child is deductible from income by the payor only if it falls within the definition of a support amount that is found in subsection 56.1(4) of the Act, which reads:
56.1(4) The definitions in this subsection apply in this section and section 56.
...
"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 common-law partner or former spouse or common-law partner of the payer, the recipient and payer are 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
(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.
This definition applies as well to sections 56 and 60 of the Act.
[6] Either an order of a competent tribunal or a written agreement is an indispensable element of a support amount. There is no suggestion in the evidence that there was ever an order of a Court or tribunal that required Mr. O'Connor to make the payments in issue. The question, then, is whether he made the payments pursuant to a written agreement.
[7] Mr. O'Connor based his claim to the deductions on a marriage contract that he and Ms. O'Connor entered into on October 30, 1991.[1] This contract contemplates marriage breakdown in a number of its provisions, and for that reason the Appellant characterizes it as a marriage contract and separation agreement. It makes the following provision for support of their children in the event that they should separate:
9(b) In the event that the parties should separate and they cannot agree on the amounts to be contributed by each of the parties, the issue of the contribution payable by the parties to the support and maintenance of the children and to other costs at that time shall be submitted to a single arbitrator who will conduct the arbitration in accordance with the Arbitrations Act of Ontario and whose decision will not be subject to appeal. This paragraph shall constitute the submissions thereto. Among other factors the arbitrator shall look at the provisions of this Agreement as they relate to contributions by both spouses toward household expenses before separation and that the Husband and Wife bore such expenses in a three-quarters (¾) one-quarter (¼) ratio respectively; and that the costs of such expenses were, as at the date of this Agreement, approximately $8,000 per month in total and expected to increase or decrease in accordance with the Consumers' Price Index (all items - Toronto Area) as published by Statistics Canada.
(c) Child support and family maintenance in accordance with this paragraph shall be payable until the first of the following occurs:
(i) each child ceases to have his primary residence with both parents or either of them;
(ii) each child becomes 19 years of age and ceases to be in full-time attendance at an educational institution;
(iii) each child attains the age of 23 years;
(iv) the child marries;
(v) the child dies.
[8] Mr. O'Connor argues that this support obligation is a written agreement sufficient to satisfy the definition of "support amount". However, it does not specify any dollar amount that would become payable, but instead provides for either a future agreement or arbitration to fix the amount. Nor does it fix a formula by which a precise obligation could be arrived at by an arithmetic calculation based on objective criteria, although it does give the arbitrator certain factors to consider, among others. Mr. O'Connor takes the position that he gave Ms. O'Connor monthly cheques for $500 for the support of their younger son following the separation, and that by accepting and cashing those cheques she agreed, in writing, to $500 per month as her entitlement for that purpose under the marriage contract.
[9] I do not agree that those cheques had any such effect. An identical question arose in Grant v. Canada.[2] Cheques for $1,000 were given by Mr. Grant to his estranged wife for support of their children each month following their separation, and before any written agreement or court order was made. Mogan J. rejected the proposition that by cashing these cheques Ms. Grant entered into a written agreement fixing $1,000 per month as the child support amount to be paid by him. I agree with his view that cashing the cheques does not imply agreement. A mother supporting children in those circumstances would be likely to need the funds and could be expected to negotiate the cheques even if she felt they were inadequate. In Grant, there was a subsequent letter from Ms. Grant's lawyer to Mr. Grant's lawyer that referred to "the agreement to receive $1,000 per month", from which Mogan J. inferred a written agreement when it was read with the cheques. Here we have no such letter, or anything like it, and no written agreement can be inferred.
[10] The only other significant document that is before me is the Minutes of Settlement that Mr. and Ms. O'Connor entered into to conclude proceedings between them for divorce and ancillary relief that were begun in the Ontario Court (General Division) in 1997. That document provided that Mr. O'Connor was to provide $6,000 on account of retroactive child support, and then went on to make provision for future payment by him of $500 per month for the younger of their children. There are additional complex provisions for payment of certain expenses by the husband, and for the wife to pay child support if their child decided to live with his father. The copy of this document that was produced at the trial, and which became Exhibit A-2, is dated December 1, 1997 and is unsigned. Mr. and Mrs. O'Connor both agreed, however, that they had both executed the original. This document makes no provision for spousal support, so any support amount paid under it must be child support. As it has a commencement date after April 30, 1997, no child support paid under it can be deductible.
[11] Mr. O'Connor's position in argument was that the marriage contract became a separation agreement when he and his wife separated in August 1996, and that they agreed orally at that time that he should pay $500 per month for support of their younger child. This agreement, he said, related back to feed the written agreement, effectively making it a written agreement to pay $500 monthly. This argument is untenable, however. It is clear from Grant, and from many earlier cases as well, that the amount of support to be paid must be specified in writing in order for there to be a written agreement to pay child support. Recent confirmation of the principle can be found in the decision of the Federal Court of Appeal in Milliron v. Canada.[3]
[12] The questions referred under section 174 will be answered as follows:
1. Some amounts paid after December 1997 may have been paid pursuant to a written agreement.
2. No amounts paid by David O'Connor to Dianne Stephanie O'Connor are deductible by David O'Connor in computing his income for 1997, 1998, 1999 or 2000.
3. No amount paid to her by David O'Connor ought to be included by Dianne Stephanie O'Connor in computing her income for 1997, 1998, 1999 or 2000.
[13] The appeal for 1999 is allowed only to the extent of the agreement of the parties referred to above. The appeals for 1997, 1998 and 2000 are dismissed.
Signed at Ottawa, Canada, this 21st day of April, 2004.
|
"E.A. Bowie" |
Bowie J.
|
CITATION: |
2004TCC217 |
|
COURT FILE NO.: |
2002-4586(IT)I |
|
STYLE OF CAUSE: |
David O'Connor and Her Majesty the Queen and Dianne Stephanie O'Connor |
|
PLACE OF HEARING: |
Toronto, Ontario |
|
DATE OF HEARING: |
December 17, 2003 |
|
REASONS FOR AMENDED JUDGMENT BY: |
The Honourable Justice E.A. Bowie |
|
DATE OF AMENDED JUDGMENT: |
April 21, 2004 |
|
APPEARANCES: |
|
For the Appellant: |
The Appellant himself |
|
Counsel for the Respondent: |
Jason J. Wakely
|
|
For the Added Party: |
Dianne Stephanie O'Connor |
|
COUNSEL OF RECORD: |
|
For the Appellant: |
|
Name: |
N/A |
|
Firm: |
N/A |
|
For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |