Tax Court of Canada Judgments

Docket: 2005-3832(IT)I

BETWEEN:

STEPHEN R. TAPE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeals heard 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 2001 and 2002 taxation years are allowed, with costs, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the terms of the attached Reasons for Judgment.

Signed at Ottawa, Canada, this 4th day of April 2006.

"J.E. Hershfield"

Hershfield J.

Citation: 2006TCC217

Date: 20060404

Docket: 2005-3832(IT)I

BETWEEN:

STEPHEN R. TAPE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Hershfield J.

[1]      This is an appeal of the Appellant's 2001 and 2002 taxation years.

[2]      During these years the Appellant made child support payments totalling $8,211.00 for 2001 and $8,268.00 for 2002.

[3]      The Appellant testified on his own behalf and the Respondent called his former spouse who received the support payments on behalf of the child of their marriage.

[4]      According to the Appellant the child support payments were made pursuant to Minutes of Settlement filed with the Ontario Court (General Division) in 1993. Pursuant to such Minutes the Appellant was required to pay $600.00 per month to his former spouse for the support of the child with a cost of living adjustment increasing that amount annually by the percentage increase in the Consumer Price Index published for the prior year. If this is the case, the payments are deductible under paragraph 60(b) of the Income Tax Act (the "Act").

[5]      The Respondent contends that the payments were made pursuant to a Judgment of that same Court made in December 1997. That Judgment also ordered $600.00 per month for the support and maintenance of the child of the marriage. While the support amount does not appear to have been varied, the Respondent takes the position that there was a variation nonetheless since the 1997 Judgment did not include the annual CPI adjustment. If this is the case, the payments are not deductible under paragraph 60(b) as there would thereby be a "commencement day" in December 1997 as that term is defined in subsection 56.1(4) of the Act. Where a "commencement day" exists, child support payments cease to be deductible to the payer and the recipient receives them tax-free. This is the "new" tax regime brought in as of May of 1997.

[6]      The Appellant believed that the 1997 Judgment was not intended to change the support amounts payable and argues that it should not be taken as doing so.

[7]      The Appellant brought evidence tending to support his view. Much of that evidence pertained to the background relating to the reason that the Appellant's former spouse petitioned the Ontario Court for the 1997 Judgment.

[8]      In an Affidavit sworn by her as Petitioner in the December 1997 proceedings, the former spouse advised the Ontario Court that the Minutes of Settlement had never been reduced to a Court Order even though it resolved all the issues outstanding between her and the Appellant.[1] The introductory words of the Minutes of Settlement provided that they were "subject to the approval of the Court". If the Minutes of Settlement had never been reduced to a Court Order it is arguable that the approval of the Court was not obtained and that it was thereby not a binding agreement. Indeed, it seems that was the position taken by the Family Responsibility Office (a branch of the Provincial Government charged with the responsibility of enforcing domestic contracts). That is, the Family Responsibility Office refused to enforce the terms of the Minutes of Settlement unless and until the Ontario Court indicated its approval.

[9]      The Affidavit goes on to indicate that the Minutes of Settlement had been followed with only one exception. That exception related to access to the child during the Christmas holiday period. To incorporate the actual practices worked out by the parties subsequent to entering into the Minutes of Settlement, the Appellant's former spouse petitioned for an Order modifying the Minutes of Settlement as they related to "Christmas access only". The request for that modification is set out in paragraph 11 of her Affidavit:

I seek an order from this Court modifying the Minutes of Settlement as those Minutes relate to Christmas access only, to bring the words of the order in line with the actual practice as implemented by Stephen Tape and me for the past four years. I further seek an Order from this Court that Judgement issue in accordance with the Minutes of Settlement signed in March, 1993, where such Minutes refer to child support. [Emphasis added]

[10]     Referring back to the Petitioner's motion to the Ontario Court, that motion was for Judgment in accordance with the Minutes of Settlement:

THE MOTION IS FOR:

Judgement in accordance with the Minutes of Settlement executed by the parties and amended over the past four years on consent as those minutes apply to access over the Christmas holiday.

Grounds for the motion are set out as follows:

THE GROUNDS FOR THE MOTION ARE:

1.          The Petitioner Anne Beach Tape has been unable to file her Order for enforcement purposes with the Family Responsibility Office, due to the introductory words of those Minutes.

2.          There are no issues outstanding between the parties that are not dealt with in the Minutes of Settlement.

[11]     Based on these submissions to the Ontario Court, clearly there is no indication that child support was sought to be varied.

[12]     As well, the Appellant brought to the Court's attention that his former spouse requested, on motion made in 2004, an Order for child support for the benefit of their child in accordance with the Federal Child Support Guidelines. An Order followed that required child support commencing September 1, 2004 in the amount of $604.00.[2] As will be noted momentarily, this resulted in a decrease in the monthly payments, the implication being that the Appellant's former spouse would not have petitioned for child support under child support guidelines knowing it would result in a lower monthly payment without believing that it would be beneficial for her to do so given the application of the new tax regime provisions to such payments.

[13]     There is also an Affidavit signed by the Appellant's former spouse in respect of the 2004 proceedings. In this Affidavit she acknowledges that since the 1997 Judgment the Appellant paid $600.00 per month "indexed". Indeed she acknowledged that again at the hearing and, as well, acknowledged that the Appellant honoured his obligation under the Minutes of Settlement on that basis ever since the Minutes of Settlement set those amounts out on that basis. Before and after the 1997 Judgment, which did not specifically refer to the CPI increases, she accepted the increased payments as her entitlement. Indeed the 1997 Judgment set out a mechanism for advance payments in the form of post-dated cheques. The former spouse's own admissions confirm that these were for amounts indexed since 1993 and not for $600.00 as the Respondent argued was the varied amount payable under the 1997 Judgment. The evidence all supports the conclusion that the parties thought, and thereby I believe must be said to have intended, that the 1997 Judgment did not vary the obligation to pay child support of $600.00 a month indexed annually according to the CPI.

[14]     Having reached this conclusion, it is necessary to deal with a paradoxical aspect of the former spouse's testimony. While she admitted that she thought she was entitled to the indexed amounts under the 1997 Judgment as per the Minutes of Settlement, she was insistent that her intent in petitioning the Court in 1997 was to bring the child support payments under the new tax regime. She said she did not know why the Petition made no reference to that since she had discussed it with her lawyer on whom she relied. It appears she thought she could maintain the same payments as required under the 1993 Minutes of Settlement and still have them under the new tax regime as long as a fresh order was obtained. That she believed this, is clear. She filed her 1998 and subsequent tax returns on the basis that the child support payments were tax-free. In her affidavit supporting the 2004 Order she explained that she wanted to start the child support payments in accordance with the Child Support Guidelines because she had been told by Revenue Canada that she was wrong about the payments following the 1997 Judgment being tax-free under the new child support provisions. She went for the 2004 variation and suffered a decrease to $604.00 a month but it ensured her tax position. At the same time she appealed the tax assessments that held her liable for tax on the child support payments in prior years.

[15]     That the Appellant's spouse hedged her position by getting the variation in 2004, is not relevant to this appeal. The question still turns on whether there has been a "commencement day" in relation to the 1997 Judgment. The Respondent argued that there was a change in the child support payable since the 1997 Judgment made no reference to the indexing factor and that, coupled with the former spouse's intent to have the Judgment bring her into the new child support tax regime, was sufficient to create a commencement day.[3]

[16]     I do not agree. As to intentions, I find the former spouse's intent was not to change the child support amounts. Had she known she had to make a change, she may well have then petitioned to go under the child support guidelines at that time. Had she done that the Appellant would have suffered a tax penalty but the payments would presumably have been adjusted. The payments set under the Minutes of Settlement were agreed to, he asserts, on the basis of their being deductible. In any event, his intent in apparently not contesting the 1997 Petition, was not to accept a change in the tax regime associated with his child support payments. His evidence was to the effect that if that is the result of the 1997 Judgment then he was blindsided by the Petition stating that it was about access to the child and making the Minutes of Settlement acceptable to the Family Responsibility Office. Nothing in the grounds for the Petition or the reasons for it in the former spouse's Affidavit suggest a change in the support amount and neither party believed that there was a change.

[17]     While I have canvassed the intentions of the parties, I do not believe they can be given weight or relevance in this case except in construing the intent and affect of the 1997 Judgment itself. Their intentions are at best a window to viewing the intentions of the Judge and considering what the Judgment might reasonably be interpreted as saying.

[18]     I do not accept that the 1997 Judgment intended to eliminate the indexing provision. The Minutes of Settlement has 59 paragraphs. The provision relating to payments of $600.00 a month child support is set out in paragraph 24 under the heading "Financial Support For The Child". The contents of that paragraph are repeated in paragraph 3 of the 5 paragraphs of the 1997 Judgment. The provision relating to indexing is set in paragraph 25 of the Minutes under the heading "Cost Of Living Adjustment". It, along with some 58 other paragraphs, are omitted from the 1997 Judgment. The question arises as to whether the 1997 Judgment can be seen as vitiating all provisions not repeated in the 1997 Judgment. That simply cannot, in common sense, be seen as the case.

[19]     Further, I note that the 1997 Judgment orders the Appellant to pay $600.00 per month commencing January 15, 1993. If the Order intended to vitiate the indexing paragraph then the Appellant would have had an action for monies had and received in respect of the indexed portions of all monies paid and received including all payments made before the 1997 Judgment.

[20]     The parties must surely regard the untouched provisions of the Minutes of Settlement as continuing to be binding. Everything about the 1997 proceedings confirms that they would be. The Petition was to "modify" the Minutes of Settlement. In my view the 1997 Judgment does not upset any expectations that the parties have in that regard. If there was a condition to the binding nature of the contract, it has long since been waived by performance.

[21]     This takes me to consider the case of Beach v. Canada, [2005] T.C.J. No. 469. The appellant in that case is in fact the former spouse of the Appellant in the case at bar. As noted above, the Appellant's former spouse appealed the assessments that treated the child support amounts received by her as taxable. Her appeal proceeded to this Court. The Respondent took the position in that appeal that the 1997 Judgment did not vary the child support payments and accordingly did not give rise to a commencement day. However the Respondent has now had to reverse its position in respect to the 1997 Judgment since this Court in Beach determined that the 1997 Judgment did create a commencement day.

[22]     In that case the Trial Judge did not have the benefit of Mr. Tape's evidence. He was not called as a witness by the Respondent.

[23]     In his Judgment, delivered from the Bench, the Trial Judge expressed the view that the 1997 Judgment was a new Judgment, since it made no reference to variations. He expressed the view that the 1997 Order replaced the Minutes of Settlement entirely.

[24]     Based on the evidence I have heard, evidence that the Trial Judge in Beach did not have the benefit of hearing, I cannot agree with this view. The Petition was to modify child access at Christmas and to ensure involvement of the Family Responsibility Office if necessary. The latter was sought to be achieved by having the support payment repeated in an Order approved by the Court. No modification of it was intended or effected in my view.

[25]     As well, in Beach, the Trial Judge advanced an alternative reason for allowing the former spouse's appeals. He found that under the 1997 Judgment, the ex-spouse in that case, namely the Appellant in the case at bar, was liable to pay the reduced amount, namely $600.00 per month, since the amount payable under the Minutes of Settlement was higher, being indexed. The Trial Judge noted specifically in his Reasons for Judgment that he had no evidence on the point as to the cost of living index being honoured and accepted by the parties and that he did not take that into account. While he also questioned its relevance, that could only be the case because the evidence was not there for him to consider. I am satisfied of its relevance based on evidence adduced at the hearing of the Appellant's appeal.

[26]     That is, based on the evidence I have heard, I am satisfied that the 1997 Judgment does not create a "commencement day".

[27]     Accordingly the appeals are allowed, with costs.

Signed at Ottawa, Canada, this 4th day of April 2006.

"J.E. Hershfield"

Hershfield J.

CITATION:

2006TCC217

COURT FILE NO.:

2005-3832(IT)I

STYLE OF CAUSE:

Stephen R. Tape 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 4, 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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