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Docket: 2005-3965(IT)I |
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BETWEEN: |
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MICHAEL H. LOEWIG, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
____________________________________________________________________
Appeal heard on August 23, 2006 at Kitchener, Ontario.
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Before: The Honourable D.G.H. Bowman, Chief Justice
Appearances:
For the Appellant: The Appellant himself
Counsel for the Respondent: Amy Kendell |
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JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 2003 taxation year is dismissed.
Signed at Ottawa, Canada this 6th day of September 2006.
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"D.G.H. Bowman" |
Bowman, C.J.
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Citation: 2006TCC476 |
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Date: 20060906 |
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Docket: 2005-3965(IT)I |
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BETWEEN: |
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MICHAEL H. LOEWIG, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
REASONS FOR JUDGMENT
Bowman, C.J.
[1] This appeal is from an income tax assessment for the appellant's 2003 taxation year. Although other issues were raised in the notice of appeal and the reply to the notice of appeal, Mr. Loewig proceeded with only one issue, the deductibility of $1,391.00 in legal fees incurred in connection with a court proceeding in which he sought to have stopped the continued deduction of support payments by the Family Responsibility Office ("FRO").
[2] The facts are quite straightforward. The appellant and his first wife are the parents of one child, Alessandra, born March 7, 1989. They separated and under the separation agreement of January 7, 1992, the spouse had custody of Alessandra. The appellant was obliged to pay to his spouse support payments in respect of Alessandra until one of several events, the relevant one here being if Alessandra ceased to live principally with the spouse. She moved out of the spouse's home in May 2003. Under the separation agreement, the obligation to pay the child support payments should have ended. However, the appellant could not simply stop paying because the payments were being made through the FRO and were being deducted from his salary as a fireman with the Brantford fire department. He asked the FRO to stop garnishing his salary but they refused to do so without either a letter from the ex-spouse or a court order. The ex-spouse refused to give a letter allowing the FRO to stop collecting the support payments. The FRO did, however, at some point stop sending the payments to the ex-spouse. The payments were held in trust by the FRO.
[3] Mr. Loewig believed, correctly as it happens, that he had no alternative but to obtain a court order. He retained a lawyer and on December 16, 2003 an Order of the Ontario Superior Court of Justice was issued as follows:
1. THIS COURT ORDERS that the parties shall have interim joint custody of the child, Alessandra Loewig born March 7, 1989. The child's primary residence shall be with the Applicant father.
2. THIS COURT ORDERS that the child support as being paid by the Applicant to the Respondent shall cease effective July 1, 2003.
3. THIS COURT ORDERS that unless the support order is withdrawn from the office of the Director of the Family Responsibility Office, it shall be enforced by the Director and amounts owing under the support order shall be paid to the Director, who shall pay them to the person to whom they are owed.
[4] Paragraph 3, in addition to being somewhat infelicitously worded, seems to make very little sense. The support payments were completely up-to-date and in fact had been collected right up to the end of 2003 with the result that the ex-spouse or the FRO owed the appellant money.
[5] The legal fees for obtaining the court order were $1,389.00. The appellant claimed them and they were disallowed.
[6] The question of the deductibility of legal fees to obtain support payments has a long history. It is comprehensively reviewed by Noël J. of the Federal Court of Appeal in Nadeau v. R., [2004] 1 C.T.C. 293. For forty years the judges of this court had held that the legal costs of establishing or maintaining a right to maintenance were deductible on the basis that the right to support income was property and therefore amounts laid out to obtain support income were deductible and were not provided by paragraph 18(1)(a) which prohibits the deduction of amounts not laid out for the purpose of gaining or producing income from a business or property. Justice Archambault refused to follow this long established line of authority. The Federal Court of Appeal held that he was wrong but affirmed his conclusion that the expenses of the payor were not deductible. At paragraph 18, the Federal Court of Appeal said:
18 Conversely, the expenses incurred by the payer of support (either to prevent it from being established or increased, or to decrease or terminate it) cannot be considered to have been incurred for the purpose of earning income, and the courts have never recognized any right to the deduction of these expenditures (see, for example, Bayer, supra).
[7] The reasoning is that while the recipient of support payments may be incurring the cost of receiving income, the same cannot be said of the payor.
[8] Mr. Loewig, in a very thorough and carefully reasoned argument, asserted that he was seeking to establish a pre-existing right and he was seeking to recover amounts that had wrongly been deducted from his salary. He relies upon paragraph 18 of Interpretation Bulletin IT-99R5 (Consolidated) which reads:
18. Legal costs incurred to enforce pre-existing rights to interim or permanent support amounts are deductible. A pre-existing right to a support amount can arise from a written agreement, a court order or legislation such as sections 11 and 15.1 of the Divorce Act with respect to child support, or Part III of the Family Law Act of Ontario, and enforcing such a right does not create or establish a new right; see The Queen v. Burgess, [1981] CTC 258, 81 DTC 5192 (F.C.T.D.). In addition, legal expenses incurred to defend against the reduction of support payments are deductible since the expenses do not create any new rights to income; see The Attorney General of Canadav. Norma McCready Sembinelli, [1994] 2 CTC 378, 94 DTC 6636 (FCA.).
[9] I have great sympathy for his position which strikes me as consistent with fairness and common sense. Nonetheless, the cost of the recovering amounts paid in excess of his obligations under the separation agreement and which, when recovered by him are not income in his hands (he did not deduct the amounts paid after July 1, 2003) cannot be said to be the cost of gaining or producing income.
[10] While interpretation bulletins are not the law, nonetheless the statement in paragraph 21 of IT-99R5 is, in my view, a correct statement of the law and is consistent with the Nadeau decision. It reads:
21. From the payer's standpoint, legal costs incurred in negotiating or contesting an application for support payments are not deductible since these costs are personal or living expenses. Similarly, legal costs incurred for the purpose of terminating or reducing the amount of support payments are not deductible since success in such an action does not produce income from a business or property. Legal expenses relating to obtaining custody of or visitation rights to children are also non-deductible.
[11] The appeal is therefore dismissed.
Signed at Ottawa, Canada this 6th day of September, 2006.
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"D.G.H. Bowman" |
Bowman, C.J.
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CITATION: |
2006TCC476 |
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COURT FILE NO.: |
2005-3965(IT)I |
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STYLE OF CAUSE: |
Michael H. Loewig v. Her Majesty The Queen |
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PLACE OF HEARING: |
Kitchener, Ontario |
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DATE OF HEARING: |
August 23, 2006 |
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REASONS FOR JUDGMENT BY: |
The Honourable D.G.H. Bowman, Chief Justice |
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DATE OF JUDGMENT AND REASONS FOR JUDGMENT: |
September 6, 2006 |
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APPEARANCES: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
Amy Kendell |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
N/A |
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Firm: |
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For the Respondent: |
John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada |
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