BETWEEN:
and
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Appeal heard on April 20, 2006, at Kitchener, Ontario
Before: The Honourable Justice T. E. Margeson
Appearances:
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JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 2000 taxation year is dismissed.
Signed at New Glasgow, Nova Scotia, this 20th day of July 2006.
BETWEEN:
JEFFREY BENHAM,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
[1] This is an appeal from a reassessment of the Minister of National Revenue (the "Minister"), notice of which was dated January 19, 2004, by which the Minister reassessed the Appellant's income tax return for the 2000 taxation year and did not allow deduction for the support payments of $5,143.85. The Appellant served on the Minister a Notice of Objection dated April 19, 2004 with respect to the Notice of Reassessment above-referred to, and the Minister confirmed the reassessment for the 2000 taxation year by Notice of Confirmation dated October 29, 2004.
[2] In Court, the Appellant confirmed all of the assumptions of fact set out in paragraph 7 of the Reply to the Notice of Appeal. The facts agreed upon were as follows:
a) the Appellant and Lori Benham (the "Former Spouse") had three children including Nadia George, born November 30, 1981 (the "Child");
b) pursuant to paragraph #5 of a Court Order of the Provincial Court (Family Division) dated January 23, 1989 ("Order #1"), the Former Spouse was granted custody of the Child and the Appellant was ordered to pay $300.00 per month commencing March 1989 to the Director of Support and Custody Enforcement of the Family Responsibility Office ("FRO"), province of Ontario, for the support of the Child;
c) the Appellant did not make the payments as required under Order #1;
d) as of August 1, 1995, the Appellant was in arrears to the FRO for an amount of $23,250.00;
e) the Appellant brought a Motion before the Ontario Court (Provincial Division) and a further Order dated November 23, 1995 ("Order #2") from this Court stipulated that paragraph #5 of Order #1 be deleted and the balance of said Motion would be dealt with on December 5, 1995;
f) on December 5, 1995, the Ontario Court (Provincial Division) further ordered ("Order #3") that the amount of arrears owing to the FRO be set at $6,000.00 and said amount would be paid off at a rate of $100.00 per month commencing on January 1, 1996;
g) the payments made with respect to the amount of arrears owed were sporadic and as of June 14, 2000, the Appellant still owed $5,143.85 and said amount included a $400.00 "Enforcement Action Fee"; and
h) the balance of $5,143.85 was paid off in two payments of $3,000.00 on June 29, 2000 and $2,143.85 on November 6, 2000.
Issue
[3] The only issue to decide is whether the Appellant is entitled to claim the amount of $5,143.85 for child support in computing taxable income for the 2000 taxation year.
[4] The Appellant agreed that the "Enforcement Action Fee", of $400, as referred to in paragraph 7(f) of the Reply to the Notice of Appeal, was not deductible in any event. However, the remainder of the amount claimed was deductible.
[5] Counsel for the Respondent argued that the payments in question were not made pursuant to the Order which is found in Exhibit R-1. That Order provided that the Appellant was to pay $300 per month commencing in March 1989 to the Director of Child Support and Custody Enforcement at the Family Responsibility Office, Province of Ontario, for support of the Child. However, the Appellant did not make the payments as required under that Order. As of August 1, 1995 the Appellant was in arrears of payments in the amount of $23,250.
[6] The Appellant brought a Motion before the Ontario Court (Provincial Division) and a further Order dated November 23, 1995 (Exhibit R-2) was issued. The effect of that Order was to delete paragraph 5 of Exhibit R-1, the payment of the $300.
[7] On December 5, 1995, the Ontario Court (Provincial Division) further ordered (Exhibit R-3) that the amount of arrears was to be set at $6,000 and that the amount was to be paid off at the rate of $100 per month commencing on January 1, 1996.
[8] The payments made with respect to the amount of arrears owed were sporadic and as of June 14, 2000, the Appellant still owed $5,143.85 and the said amount referred to as the "Enforcement Action Fee" of $400. The Appellant paid the balance of $5,143.85 in two payments of $3,000 on June 29, 2000 and $2,143.85 on November 6, 2000. There was no issue taken by counsel for the Appellant with respect to the accuracy of these allegations of fact.
[9] The Respondent's position is that the amount was not deductible as it was not paid on a periodic basis under an Order of a competent tribunal (being Order number 1) as defined in subsection 56.1(4) of the Income Tax Act ("Act") but was rather a payment with respect to a settlement for arrears of child support owed by the appellant as stated in Exhibit R-4. This amount was less than the amount stipulated in Exhibit R-1 and is not deductible in accordance with paragraph 60(b) of the Act.
[10] Counsel for the Respondent further argued that the amount was not deductible within the meaning of paragraph 60(b) of the Act as a requirement to pay child support in accordance with paragraph 5 of Exhibit R-1 was rescinded pursuant to the terms of Exhibit R-2. Counsel referred to the case of Susan Widmer v. Her Majesty the Queen, [1996] 1 C.T.C. 2647, a decision dated August 23, 1995, in support of his position but added that in that case the agreement did not even settle the matter whereas in the case at bar, it did.
[11] Further, counsel referred to the case of M.N.R. v. Armstrong, [1956] S.C.R 446, 56 DTC 1044 and said that in that case as here, the test was whether it was paid in pursuance of a decree, order or judgment and not whether it was paid by reason of a legal obligation imposed or undertaken. "Here, the amount was paid to obtain a release from the liability earlier imposed and not paid pursuant due to the Order."
[12] Further, in Macburnie v. Canada, [1995] 2 CTC 2796, the Court reached the same conclusion where the facts and situation was not unlike the facts and situation in the case at bar. In that case the Court held that the payment was in the nature of a capital payment and was not an alimony or maintenance payment within the meaning of paragraphs 56(1)(b) and 56(1)(c) of the Act.
[13] In the case of Brian Lebreton, Appellant and Her Majesty the Queen, respondent, 2002 CarswellNat 5026, after a considerable review of a number of cases on the subject the Court came to the same conclusion.
[14] Likewise, in Georges Begin, Appellant v. The Queen, Respondent, 2003 CarswellNat 5286, the Court held that the payment made was in fact a capital payment to obtain a clean break from the obligation to pay alimony as imposed by the February 1999 judgment and was not deductible. The same conclusion should be reached in the present case.
Argument on Behalf of the Appellant
[15] In written submissions, counsel for the Appellant attempted to distinguish all of the cases relied upon by counsel for the respondent. In Begin v. The Queen, supra, it was agreed that the amount owing was to be characterized as a capital payment, in the case at bar the Court found a change of circumstances and made a change in the amount owing. His position was that this was not a capital payment by the taxpayer.
[16] In Lebreton v. Regina, supra, he argued that the payee entered an agreement with the spouse to relieve the taxpayer's obligations. This, he said, was different from the present case where the Court Order found a change in circumstances and made the Order. Therefore, it is not a capital payment here.
[17] In the case of Macburnie v. Canada, supra, he said that the amount of the Court Order was more than the amount owing in arrears and was clearly to bring the Respondent out of his continuing obligations. Hence it was a capital payment.
[18] In the present case that is not what happened. The $6,000 was not a capital payment but a variation made under the Rules of the Court as a result of a change in circumstances. Hence, it is composed of periodic payments and is deductible.
[19] MNR v. Armstrong, supra, was a case of a cash settlement made to buy out a periodic obligation. This is not the case here. The payment is not being made here to buy out anything it is just to pay the periodic payments.
[20] In Widmer v. Her Majesty the Queen, supra, the amount owing was considered as a buy out. In this case the amount was based on changes in circumstances and this reflects the amount owing based on the income of the support payor. Therefore, the payment was not a capital payment but one composed of periodic payments.
[21] Counsel argued that the appeal should be allowed and the Appellant should be entitled to deduct the amount in question.
Analysis and Decision
[22] The Court is satisfied that the cases referred to by both counsel cannot be distinguished by counsel for the Appellant. There are certainly many differences in the factual situations, but the essential point is the nature of the payment made in this case and the payments made in those cases. In those cases, as here, the important point is not whether the amounts may be considered to be capital, or capital in nature, but, whether the Court is satisfied that the payments were made to relieve a past obligation and therefore did not qualify as periodic payments within the meaning of paragraph 60(b) of the Act. The payments here were in the nature of a global amount to put an end to an obligation earlier created.
[23] In Macburnie, supra, as in the case at bar, the payments were made to terminate the obligations of the Appellant under the original Order. It does not matter how the amounts were calculated or what the amount of the payment was. It was not a payment within the meaning of subparagraph 56(1)(b) and (c) of the Act.
[24] As pointed out in the case of M.N.R. v. Armstrong, supra, the issue was whether the amount was paid in pursuance of a decree, or judgment, not whether it was paid by reason of a legal obligation imposed or undertaken. In that case, as here, the amount paid was paid in order to obtain a release from a liability earlier imposed. The same position was reached in Widmer v. The Queen, supra.
[25] As far as the Court is concerned the argument made by counsel for the Appellant that this case differed from the others because the payment was obtained due to a change in circumstances that became the triggering event, is without merit.
[26] Further, the Court can see no merit in the argument that the $6,000 was not a capital payment made to buy out the amount owing by the respondent, but an amount that was calculated as owing from the periodic payments. The important point is that the amounts paid were not on a periodic basis pursuant to an Order of a competent tribunal.
[27] Counsel for the respondent argued that the Appellant is not entitled to deduct the amount of $5,143.85 from his income for the 2000 taxation year within the meaning of paragraph 60(b) of the Act as the requirement to pay child support in accordance with paragraph 5 of Order number 1 was rescinded pursuant to the terms of Order number 2 as stated in subparagraph 7(e) of the Reply. This point is well taken.
[28] The appeal is dismissed and the assessment is confirmed.
Signed at New Glasgow, Nova Scotia, this 20th day of July 2006.
"T. E. Margeson"
Margeson J.
STYLE OF CAUSE: JEFFREY BENHAM AND HER MAJESTY THE QUEEN
PLACE OF HEARING: Kitchener, Ontario
DATE OF HEARING: April 20, 2006
REASONS FOR JUDGMENT BY: The Honourable Justice T. E. Margeson
DATE OF JUDGMENT: July 20, 2006
APPEARANCES:
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Counsel for the Appellant: |
Gerald Punnett
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Counsel for the Respondent: |
Nicolas Simard |
COUNSEL OF RECORD:
Firm: Punnett & Rea
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Canada