Tax Court of Canada Judgments

Docket: 2005-3901(IT)I

BETWEEN:

CAREY OGILVIE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeals heard and Reasons for Judgment delivered orally

on March 28, 2006 at Ottawa, Ontario

Before: The Honourable Justice J.E. Hershfield
Appearances:
For the Appellant:	The Appellant himself
Counsel for the Respondent:	Nicolas Simard

____________________________________________________________________

JUDGMENT

          The appeals from the assessments made under the Income Tax Act for the 2002 and 2003 taxation years are allowed, with costs, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that for the 2002 taxation year child support amount payments in the amount of $342.00 per month for 12 months totalling $4,104.00 be allowed as deductible amounts pursuant to paragraph 60(b) of the Income Tax Act, and for the 2003 taxation year, child support amount payments in the amount of $349.00 per month for eight months totalling $2,792.00 be allowed as deductible amounts pursuant to that paragraph, in accordance with the attached Reasons for Judgment edited from the transcript of Reasons delivered orally.

Signed at Winnipeg, Canada, this 11th day of April 2006.

"J.E. Hershfield"

Hershfield J.

Citation: 2006TCC220

Date: 20060411

Docket: 2005-3832(IT)I

BETWEEN:

CAREY OGILVIE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

(Edited from the transcript of Reasons delivered orally

from the Bench at Ottawa, Ontario on March 28, 2006[1])

Hershfield J.

[1]      This is an appeal for the 2002 and 2003 taxation years. The Appellant claimed child support payment deductions of $4,320.00 for 2002 and $4,406.00 for 2003. These were denied on the basis that the Appellant and his former spouse signed a child support agreement dated May 29, 1998 that amended a Court Order made in 1995 calling for child support of $150.00 per month for each of two children of the marriage, indexed annually.

[2]      The amending document was prepared by the former spouse and presented to the Appellant to sign on the basis that it was necessary in order for them to elect to discontinue the involvement of the Family Responsibility Office ("FRO"). Indeed the amending document headed "Child Support Amendment Details" states in the opening paragraph that it is an election to discontinue involvement in the family support plan. The assumptions in the Reply to the Notice of Appeal noted that there had been difficulties in the involvement of the FRO. The amending document goes on to provide for child support of $365.00 per month ($182.50 per child) with annual indexing. The Appellant was agreeable to that. Indeed his evidence leads me to believe that he set the support at that amount.

[3]      The assessments rely on the amending document being signed when dated and on it making changes to the support amount payable so as to create a "commencement day" as defined in subsection 56.1(4) of the Income Tax Act (the "Act").

[4]      The existence of a commencement day would bring the child support payments under the post April 1998 tax rules under which such payments are no longer deductible to the Appellant.

[5]      The Respondent did not call the former spouse to give evidence. The Appellant gave evidence and was, unchallenged by conflicting testimony, a credible witness. He admitted signing the amending document but testified that it was not signed until or about August 2003. He also testified that the amount agreed upon as child support ($365.00 monthly, indexed) was not intended to vary the child support amount that he was required to pay. He testified that he had indexed payments under the 1995 Order by approximating his obligation to do so at 2% per year. His intention was that by agreeing to pay $365.00 monthly, indexed, he was agreeing to pay the indexed amount payable under the 1995 Order for 2003 so that there was no variation in the child support amount.

[6]      I am going to allow the appeal for the 2002 year in the amount of $4,104.00 being $342.00 per month, and I am going to allow the appeal for the 2003 year in the amount of $2,792.00 being $349.00 per month for eight months.

[7]      I will give brief Reasons for coming to that conclusion.

[8]      The Respondent's case is based upon the amending document having been signed in May 1998, and having specified a varied child support amount.

[9]      That is, the Respondent assumed, in making the assessments and denying the deduction of child support that the agreement was entered into as dated.

[10]     The Appellant has come before me and testified, in my view credibly, that the date on the amending document, that purports to amend the child support arrangement, was not the date that it was actually signed by him.

[11]     His explanation of events and the corroborating documents and factors that he presented bolster the credibility that I already attribute to his testimony; but it is important, nonetheless, that I refer to the evidence that does bolster his credibility.

[12]     He points out that the May 29, 1998 date, which appears on the face of the amending document, was a date that coincided with other correspondence signed by the Appellant and his former spouse and sent to the FRO in 1998 electing to withdraw their involvement at that time. He testified that his former spouse approached him in about August 2003 and told him she needed to date the new document the same as the date as the original document. While this testimony might seem somewhat suspect, the Appellant produced a May 2005 sworn statement from the FRO stating that the 1995 Order had never been varied by order or agreement. They had never received the amending document. It appears that the amending document was given to the Canada Revenue Agency ("CRA") during a 2003 audit or so the Appellant's testimony would have me believe. On the face of the amending document it states it is for the FRO but the inference is that she drew it up and used it in 2003 to support a tax-free receipt of the child support payments.

[13]     Further the Appellant testified that the amount of $365.00 per month was the amount he calculated (using 2% indexing per year) as the amount payable in 2003. Using actual tables as required for Ontario Court orders (under the Family Law Act), Respondent's counsel calculated that the indexed payment in 2003 would be $349.00 per month. It seems unlikely that the Appellant would have agreed to $365.00 per month in 1998.

[14]     As well, the amount of $365.00 per month is an amount that I am satisfied the Appellant did not actually pay until 2003. His claim for 2002 was $360.00 per month and his claim for 2003 was for 102% of this amount or just over the $365.00 per month that he agreed to in the amending document. This clearly tends to corroborate his testimony that he did not agree to $365.00 per month in 1998.

[15]     The tax returns, which were verified by Respondent's counsel, confirm that the amount paid in 2002 was less than the amount said to have been agreed to in 1998. As stated, this corroborates that the higher amount was not agreed to until 2003, as testified to by the Appellant.

[16]     The Respondent's assessments have not considered this new evidence as to when the amending document was actually signed. The Respondent's assumption was that the 1995 Order to pay $300.00 per month was varied in 1998 so as to make subsequent payments under the new tax régime non-deductible to the Appellant. However I am satisfied on the unchallenged evidence of the Appellant that there was no amendment to that 1995 Order until or about August 2003. That is, I am satisfied that the assumptions upon which the assessments are based were wrong. The Appellant's evidence is that he trusted his former spouse's explanation for pre-dating the amending document that he now, in effect, says is a deception.

[17]     I have no evidence here to contradict the Appellant in terms of what his former spouse might say, but it was open to the Crown to bring such evidence. That has not happened; nor was an adjournment requested.[2]

[18]     It is always possible that conflicting evidence might have led to a different conclusion. But on the evidence, I have, I am satisfied, as stated, that the document here referred to as amending the 1995 Order was not signed until August 2003.

[19]     Where that leaves me, then, is to determine the correct amounts that are deductible for the subject years.

[20]     The 1995 Order is for $300.00 per month, indexed as per the Family Court Act.

[21]     Calculations were made during the course of the hearing that would indicate that the inflationary adjustments provided for under that legislation would have brought the payments for 2002 to $342.00 per month and $349.00 for 2003. Therefore, the amount that would have been payable under the 1995 Order by the Appellant for child support is $342.00 per month in 2002 and $349.00 in 2003. That is the amount deductible under subsection 60(b) of the Act. That subsection only permits deduction of the amount paid pursuant to the 1995 Order.

[22]     The Appellant acknowledges that he paid $360.00 per month in 2002 and $365.00 per month in 2003 believing those were the required indexed amounts. He acknowledges that he had made rough calculations since 1995 as to what the annual inflation adjustment should be, and he appears to have made them in error. He suggested that he may have used an indexing factor commencing in 1993 (as opposed to 1995) and mistakenly had an extra two years (4%) built in. While this explanation makes little sense it matters not. He was, in any event, content with his methodology that caused him to pay $360.00 per month in 2002 and $365.00 per month in 2003, instead of the required amounts of $342.00 and $349.00 respectively.

[23]     His more casual approach to these calculations does not change the fact that it is only the lesser amounts that were payable under the 1995 Order, and it does not change the fact that only the lesser amounts are deductible in accordance with the provisions of the Act that allow for the deduction of child support payments.

[24]     The fact that an extra amount was paid does not, in my view, disqualify the deduction of the lesser amount that was paid in accordance with the 1995 Order.

[25]     At this point I note that Respondent's counsel relied in his argument on the amending document being said to be effective commencing June 1, 1998 and that I should take this as the intended commencement day. While the amending document states the payment commencement date on its face as June 1998, my acceptance of the unchallenged evidence of the Appellant defeats this argument.

[26]     There is nothing in the Appellant's testimony that leads me to believe that he intended to sign something that would find him responsible to pay more than he actually paid between 1998 and 2003. I find no intent that the payment obligation was meant to be either forward looking from 1995 or retroactive from 2003 back to 1995.

[27]     The Appellant did ask me whether I might consider payments after August 2003 as being within the spirit of the original 1995 Order given that there was really no intent to change the status quo of the tax régime as it stood in 1995.

[28]     The Appellant argued that even though he adjusted the payments annually using an incorrect indexing factor, he intended to comply with the prescribed provisions under the law.

[29]     He argued that had he complied more exactly, he would still be under the old régime and if his intention was to maintain the old régime, to maintain the status quo, then the Court should honour that intention. There was really no intention to create, in effect, a new obligation. It was the old obligation, just calculated somewhat generously.

[30]     While I am sympathetic to the argument, I cannot agree, ultimately, that the legislation cannot be applied in that way. As well, the Appellant's spouse did intend a change in the tax situation. Her testimony is not necessary on the point since that was the testimony of the Appellant.

[31]     In any event, the legislation is specific enough to require the régime to change when there has been a change in the child support amount payable. The support amount payable under the 1995 Order for 2003 was $349.00. Regardless of the reason, he agreed in a written agreement to change the payment to $365.00. That he thought it was the right number under the 1995 Order for that year based on his own miscalculations, does not change the fact that it was a variation. While mistakes might vitiate an obligation in some circumstances, this is not such a circumstance. A party to a contract who has knowingly agreed to the consideration payable, intending to honour the obligation at that price, cannot change the consideration or avoid the contract by saying he miscalculated and paid more than he should or could have. As harsh as it may seem to the Appellant in the circumstances, that is the situation he finds himself in. The deception he claims his wife engaged in pertained to the date of the amending document, not the consideration which he determined, agreed to and paid.

[32]     Accordingly, I will allow child support deductions of $342.00 per month for 12 months in respect of the 2002 year on the basis that the Appellant's obligation to pay child support under the 1995 Order was that amount. The amount allowed in respect of the 2003 year is $349.00 per month for eight months: that is, for the first eight months of the year inclusive of August.

[33]     Although the Appellant was uncertain as to the actual signing date of the amending document, he bears the burden of proof. Failing to be precise, leaves it to me to find then that effective September 1, 2003, and thereafter, his payments will not be deductible as they are made pursuant to the amending document which varies the child support amount payable and thereby creates a "commencement day" from which time the new tax regime applies.

[34]     Those are my Reasons. I will sign a Judgment to that affect.

Signed at Winnipeg, Canada, this 11th day of April 2006.

"J.E. Hershfield"

Hershfield J.

CITATION:

2006TCC220

COURT FILE NO.:

2005-3901(IT)I

STYLE OF CAUSE:

Carey Ogilvie and Her Majesty the Queen

PLACE OF HEARING:

Ottawa, Ontario

DATE OF HEARING:

March 28, 2006

REASONS FOR JUDGMENT BY:

The Honourable Justice J.E. Hershfield

DATE OF JUDGMENT:

April 11, 2006

APPEARANCES:

For the Appellant:

The Appellant himself

Counsel for the Respondent:

Nicolas Simard

COUNSEL OF RECORD:

For the Appellant:

Name:

Firm:

For the Respondent:

John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada

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