Tax Court of Canada Judgments

Citation: 2003TCC2

Date: 20030130

Docket: 2002-1861(IT)I

BETWEEN:

MARVIN GLAZIER,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

_______________________________________________________________

Appeal heard on January 15, 2003, at Toronto, Ontario

By: The Honourable Judge A.A. Sarchuk
Appearances:
Agent for the Appellant:	Perry Truster
Counsel for the Respondent:	James Rhodes

_______________________________________________________________

JUDGMENT

          The appeal from the assessment of tax made under the Income Tax Act for the 1998 taxation year is dismissed.

Signed at Ottawa, Canada, this 30th day of January, 2003.

"A.A. Sarchuk"

J.T.C.C.

Citation: 2003TCC2

Date: 20030130

Docket: 2002-1861(IT)I

BETWEEN:

MARVIN GLAZIER,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Sarchuk J.

[1]      This is an appeal from an assessment of tax made by the Minister of National Revenue with respect to the Appellant's 1998 taxation year. At issue is the deductibility of the amount of $23,595 claimed by him as support payments made in that taxation year.

[2]      The basic facts are not in dispute. The Appellant and his former spouse, Marsha, were married on June 15, 1986. There were no children of the marriage. In 1989, the parties agreed to live separate and apart and have in fact so lived continuously since that date. A divorce judgment was granted on September 16, 1991. Pursuant to this judgment, the Appellant was required to make support payments to his former spouse. At some point of time in 1997 the Appellant, as a result of changed financial circumstances, discontinued payment thereof and was sued by her. A Request for Garnishment dated March 31, 1998[1] indicates that the arrears owing as of this date amounted to $18,702.95. Throughout this period, the parties were engaged in negotiations and in due course the various issues in dispute were resolved and on July 6, 1998, minutes of settlement were executed by both parties.[2] The provisions relevant to the issue before the Court are as follows:

3           Payment of Arrears and Release of Spousal Support

(1)         On or before the 25th day of September, 1998, the Husband shall pay to the wife (or to such person as she may direct in writing) the sum of Twenty-Three Thousand Five Hundred and Ninety-Five Dollars ($23,595) being costs of Seven Thousand and Five Hundred ($7,500) and arrears of spousal support of Sixteen Thousand and Nine-Five Dollars ($16,095) due under the judgment of the Honourable Mr. Justice Walsh dated September 16, 1991. This shall be the final payment due under the said judgment. There shall be no obligation of the Husband to pay any other spousal support to the Wife.

(2)         Except as provided in subparagraph 1 above, each party:

(a)         is financially independent;

(b)         does not require financial assistance from the other;

(c)         releases the other from all obligations to provide support or interim support, pursuant to the Family Law Act or the Divorce Act; and

(d)         releases all rights to claim or obtain support or interim support, pursuant to the Family Law Act or the Divorce Act, from the other.

(e)         The parties realize that their respective financial circumstances may change in the future by reason of their health, the cost of living, their employment, and otherwise. No change whatsoever, even if it be material, profound, catastrophic, or otherwise, whether casually connected to the marriage or not, will give either party the right to claim or obtain interim or permanent support pursuant to the Family Law Act or the Divorce Act, or any other statute or law, from the other. Without restricting the generality of the foregoing, the Wife specifically agrees that she will not apply for indexing of any support payment pursuant to section 34(5), (6) and 38 of the Family Law Act and that she will not apply for variation pursuant to 35(1),(2) and 37 of the Family Law Act or section 17 of the Divorce Act.

4.          Property Division

(1)         Property division has been resolved by the Judgment of the Honourable Mr. Justice Walsh dated September 16, 1991.

...

8.          General

(a)         The Husband and the Wife accept the terms of this Agreement in full satisfaction of all claims against the other except for claims:

(i)          arising under this Agreement.

                                                                  (Emphasis added)

[3]      The Appellant was permitted some period of time in order to make the payment required pursuant to the separation agreement. This was done on October 1, 1998[3] and was followed shortly thereafter by the judgment issued by Mr. Justice O'Connell on October 26, 1998.[4] The relevant portions of this judgment are:

THIS APPLICATION made by the Applicant for variation of the Judgement of the Honourable Mr. Justice Walsh dated September 21, 1991, in action No. 169020/89, so as to rescind arrears of spousal support and costs, to rescind the obligation of the Applicant to pay any further spousal support to the Respondent, and to obtain other relief was read this day at Toronto, Ontario.

            ON READING the said judgment, the affidavits and financial statements of the parties, and the consent of the parties by their solicitors, no party to this proceeding being a person under disability;

1.          THIS COURT ORDERS AND ADJUDGES THAT the Applicant, having paid to the Respondent the sum of Twenty-Three Thousand Five Hundred and Ninety-Five Dollars ($23,595) on October 1, 1998, being the amount owing as of June 26, 1998, by the Applicant to the Respondent, for spousal support, interest and costs, pursuant to the Judgment of the Honourable Mr. Justice Walsh dated September 21, 1991, in Action No. 169020/89 at Toronto, shall be and is hereby discharged of any and all obligation or liability to pay any other amount to the Respondent, including but not limited to amounts in respect of spousal support to the Respondent, past, present or future.

2.          THIS COURT ORDERS AND ADJUDGES THAT the Judgment of the Honourable Mr. Justice Walsh dated September 21, 1991, in Action No. 169020/89 at Toronto, shall be and is hereby varied to rescind any and all obligations of the Applicant to pay to the Respondent any sum or sums of money beyond the amounts paid, or deemed to have been paid by the Respondent to the Applicant, on or before June 26, 1998, or beyond the arrears of spousal support as of June 26, 1998, together with interest and costs, which comprise the sum specified in paragraph 1 above.

                                                                                                      (Emphasis added)

Appellant's position

[4]      The Appellant maintains that the amount of $23,595 represents nothing other than the full amount of arrears of spousal support. He relies on the Request for Garnishment dated March 31, 1998 which he says, established that the amount of arrears as of that date to be $18,702.95. Furthermore, since the periodic payments of support were to be $1,630.64 on a monthly basis, a quick calculation would indicate that the inclusion of the withheld payments for April, May and June would bring that amount to $23,594.87. The conclusion he draws therefrom is that the amount of $23,595 referred to in both the minutes of settlement and the subsequent Court Order issued by O'Connell J. related entirely to arrears of spousal support and no portion thereof related to the satisfaction of future obligations.

[5]      The Appellant's representative contends that the jurisprudence relating to circumstances such as those before the Court makes it clear that the portion of a lump sum payment which relates to making arrears of periodic support current is fully deductible. In support, he referred to Soldera v. M.N.R.[5] in which case the taxpayer was allowed a deduction on account of a lump sum payment to his former spouse, which payment represented past liabilities which had fallen into arrears. He relies specifically on the Court's comment that "so long as the agreement provides that the monies are payable on a periodic basis, the requirement of the subsection is met. The payments do not change in character merely because they are not made in time". The representative distinguished the cases cited on behalf of the Respondent arguing that they reflected situations in which the lump sum payment was in full settlement of all support amounts payable in the future. That, he says, is not the case in the present appeal.

Respondent's position

[6]      Counsel submitted that the payment in issue was not alimony or other allowance payable on a periodic basis for the maintenance of the Appellant's spouse. Furthermore, the payment released him from any future obligation to pay spousal support. Therefore, it did not meet the requirements of section 60.1 and paragraph 60(b) of the Income Tax Act and accordingly was not deductible in the taxation year in issue.

Conclusion

[7]      It is generally accepted that periodic payments which have fallen into arrears and were accumulating and subsequently paid in lump sum are nonetheless deductible in the hands of the payor and in appropriate circumstances, taxable in the hands of the recipient. This is consistent with the position set out by the Federal Court of Appeal in The Queen v. Sills[6] that "the payments do not change in character merely because they are not paid on time". On the other hand, where a lump sum in an amount substantially less than the amount owing is agreed to be paid so as to release the payor from any future obligations, the character of the payments is altered and the lump sum payment is not deductible.[7]

[8]      In the present appeal, there is no question that the amount of $16,095 to be paid "as arrears of spousal support" did not represent the full amount of arrears due and owing at that particular time. There is equally no question that the amount agreed to formed part of the consideration paid so as to release the Appellant from any future obligations. That this is so, is clearly established by paragraph 10 of the minutes of settlement which reads:

10.        Full and Final Settlement

(a)         The Husband and Wife agree that the support and property provisions of this agreement are inextricably intertwined and constitute a full and final financial settlement.

One need only to refer to the unambiguous language in both the separation agreement and the Order to the effect that the Appellant was "discharged of any and all obligation or liability to pay any other amount to the Respondent, including but not limited to amounts in respect of spousal support to the Respondent, past, present or future", to reach that conclusion.[8]

[9]      This Appellant's reliance on Soldera is not well-founded since in that case the lump sum payment represented what Soldera was required to pay under a previous Order and, more importantly, there was no extinguishment of present or future obligations. In my view, it is not possible to consider the lump sum payment in the present case as anything other than an amount paid to obtain a release from a liability imposed by an Order or agreement whether such liability be in respect of arrears of maintenance payments, future payments or both. Accordingly, the appeal is dismissed.

Signed at Ottawa, Canada, this 30th day of January, 2003.

"A.A. Sarchuk"

J.T.C.C.

CITATION:

2003TCC2

COURT FILE NO.:	2002-1861(IT)I

STYLE OF CAUSE:

Marvin Glazier and Her Majesty the Queen

PLACE OF HEARING

Toronto, Ontario

DATE OF HEARING

January 15, 2003

REASONS FOR JUDGMENT BY:

The Honourable Judge A.A. Sarchuk

DATE OF JUDGMENT

January 30, 2003

APPEARANCES:

Agent for the Appellant:

Perry Truster

Counsel for the Respondent:

James Rhodes

COUNSEL OF RECORD:

For the Appellant:

Name:

N/A

Firm:

N/A

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada