BETWEEN:
and
and
ESTATE OF JOHN G. CRAWFORD,
Third Party.
Agent for the appellant: Darrell Callwood
Counsel for the Respondent: Aleksandrs Zemdegs
For the Third Party: No one appeared
___________________________________________________________________
(Delivered orally from the Bench on
March 29, 2007, at Toronto, Ontario)
BowieJ.
[1] This income tax appeal concerns assessments for the years 2000 and 2001 whereby the Minister of National Revenue levied income tax on certain child support amounts received by the appellant from her former spouse.
[2] The appellant and her former spouse separated in January 1997. They entered into a separation agreement at that time pursuant to which the former husband was required to pay to the appellant child support of $400 per month for their three children. At that time, such payments were deductible by the payor, and they were required to be brought into income by the recipient. In mid-1997, the Income Tax Act was amended to provide that payments of child support amounts would be neither deductible nor taxable if they were made under a separation agreement or a Court Order having a commencement day after April 1997.
[3] The separation agreement in this case was amended by an amending agreement dated October 12, 2000, and signed by the parties on that day. The dispute between the parties is as to whether that amending agreement created a "commencement day" after April 1997, in which case the Appellant would not be subject to taxation in respect of child support payments made pursuant to the amending agreement.
[4] The matter was first tried before another judge of this Court, who concluded that the amending agreement did not create a commencement day, but that a commencement day was created on December 14, 2001 by an Order of the Ontario Superior Court of Justice which had the effect of suspending the appellant's ex-husband's obligation to pay support for one of the three children, effective from that date, as she no longer lived with her mother.
[5] That decision was appealed by the appellant, successfully, to the Federal Court of Appeal. For the reader to understand the Court of Appeal's decision, it is necessary to set out here certain excerpts from the separation agreement and the amending agreement:
[6] The agreement of January 1997, after setting out somewhat vague language that the parties now agree provides for child support of $400 per month, goes on to provide:
Husband agrees to render payments on a weekly basis in the form of cashier's check or money order until a wage attachment is granted.
It is specifically understood and agreed by the parties that if said minor children attend college, then the support payments will continue until graduation or enrolment ceases. It is also understood that the Husband will share the burden of expenses for clothing, medical insurance and other necessary expenses of said children.
The amending agreement of October 12, 2000 specifically deleted those two paragraphs from the original agreement, and again I quote:
Paragraph VII of the Domestic Contract is amended by deleting therefrom the two ending paragraphs therein from "Husband agrees to ..." to "... lifetime of the parties hereto.
[7] It was in this context that Sheridan J. ordered that the following questions be determined pursuant to section 174 of the Income Tax Act:
1. Whether a separation agreement dated January 7, 1997 between Tracey Callwood and John Crawford (collectively, the "Parties") was varied after April 1997 to change the child support amount payments, or the total child support amount payable, by John Crawford to Tracey Callwood, thereby triggering a post April 1997 "commencement day" within the meaning of subsection 56.1(4) of the Income Tax Act;
2. Whether the child support payments by John Crawford to Tracey Callwood (the "SupportAmounts") have been properly included in Tracey Callwood's income, pursuant to paragraph 56.1(b) of the Act; and
3. Whether the Support Amounts are deductible by John Crawford in computing his income, pursuant to paragraph 60(b) and subsections 60.1(1) and (2) of the Act.
The references to support amounts in questions 2 and 3 refer to the amounts paid by John Crawford to Tracey Callwood for support of their three children in 2000 and 2001.
[8] The judgment of this Court answering those questions was appealed to the Federal Court of Appeal. That Court examined the separation agreement and the amending agreement, and concluded that the deletion of the provision that would have required Mr. Crawford to continue support payments while the children attended college did not vary the support payable, as the obligation that was deleted was merely a contingent obligation at the relevant time. The Court of Appeal went on to reject the trial judge's conclusion that the sentence in the original agreement:
It is understood that the husband will share the burden of expenses for clothing, medical insurance and any other necessary expenses of said children.
did not provide for periodic payments and, therefore, could not constitute a support amount. The Court of Appeal held that what it called the Shared Expenses Obligation was indeed payable on a periodic basis on the authority of McKimmon v. Canada,[1] thus opening up the possibility that it is a support amount, and thus a child support amount. In the result, the Court of Appeal remitted the case to this Court to determine:
Whether the amending agreement's deletion of the Shared Expenses Obligation created a commencement day within the meaning of the Act as a support amount.
[9] Pursuant to that Court of Appeal Order, I heard evidence from the parties and admitted a number of documents into evidence at the hearing before me. Much of that evidence was directed towards persuading me that the Shared Expenses Obligation was one that would only arise if the children attended college, and thus, being contingent in nature, could not, by its removal, cause a variation in the support amount. For his part, Mr. Callwood, testifying for the appellant, attempted to show that Mr. Crawford had paid some shared expenses, which, in his view, would include certain premiums paid by Mr. Crawford on life insurance policies in the children's names.
[10] It is clear, however, that what is material is not what Mr. Crawford in fact paid, but what he was obliged by the separation agreement to pay. The agreement, I was told, was prepared by Mr. Callwood, not by a professional having experience in drafting separation agreements. The paragraph giving rise to the College Obligation and to the Shared Expenses Obligation is at best inelegant in its wording, but I think its meaning is clear. The Shared Expense Obligation is over and above the obligation to pay $400 per month. More important, the Court of Appeal clearly arrived at that conclusion. There are only three possibilities so far as the Shared Expense Obligation is concerned:
1. that there is an obligation each year over and above the $400 per month payment;
2. that they arise only if the children to go college; or
3. that it is, as Mr. Zemdegs argued, simply surplusage creating no additional obligation at all because of the omission from that provision of the verb "to agree".
[11] The Court of Appeal clearly was of the view that there was an immediate obligation, or it would not have remitted the matter to this Court to examine the question whether the shared expensed obligation was an allowance. If it had been of the view that the obligation was contingent, or as Mr. Zemdegs submits, not an obligation additional to the $400 per month payment at all, then it would surely have simply dismissed the appeal. If the Shared Expense Obligation arises only when the children go to college, then it, like the College Obligation, would be contingent. If it is surplusage, then it is no obligation at all. In either of those events, its deletion could not change the support amounts payable and so, could not create a commencement day.
[12] In order to qualify as an allowance for the purposes of section 56.1, an amount must meet three criteria. First, the amount must be limited and predetermined. Second, the amount must be paid to enable the recipient to discharge a certain type of expense - namely maintenance of the recipient or children of the payor and the recipient. Third, the recipient must be able to dispose of the amount completely.
[13] These rules are established by Gagnon v. Canada[2] and Rosenberg v. Canada,[3] which applied Gagnon. The payments mandated by the Shared Expenses Obligation in this case cannot meet the first of those requirements. Mr. Crawford is now deceased, and the appellant did not testify as to this issue. There is no evidence before me to suggest that either of them had directed any thought at all to what expenses would be included in the expression: "other necessary expenses of said children". There is no evidence of any estimate at all by either party to the agreement of the amount that would be payable under the shared expense provision. Rosenberg v. Canada, is authority for the proposition that the amount in question need not be precisely settled in the agreement; however, it must be ascertainable to qualify as having been predetermined. With no estimate of the periodic amount, and no clear agreement and definition of the scope of the expression "other necessary expenses", this requirement simply is not met.
[14] In this regard, it is significant that the appellant's agent introduced evidence that establishes that Mr. Crawford did not even think that the shared expenses provision was operative unless the children were enrolled in college, although it certainly appears that he was wrong in that respect.
[15] The result of the appeal and the answers to the questions referred under section 174 of the Act, therefore, remain as found by Hershfield J. The amending agreement did not vary the child support amounts payable, or the total child support amount payable, under the separation agreement, and so did not create a commencement day. The Order of the Superior Court did change the total child support amounts payable, and it therefore created a commencement day. Hershfield J. held that this was December 14, 2001. I appreciate that the respondent's position is that the commencement day created by that Order is the day it was made, which was August 2, 2002. However, Hershfield J. held that it created a commencement day on December 17, 2001, the effective day of the change in the support payment. The respondent did not appeal from the judgment of Hershfield J., and my jurisdiction to deal with this matter is limited by the Order of the Court of Appeal to determining whether the amending agreement's deletion of the Shared Expenses Obligation created a commencement day. The result of the appeal to this Court therefore is unchanged from that arrived at by Hershfield J.
[16] For the year 2000, the amount of $20,800 paid by John Crawford to Tracey Callwood was properly included in her income and was deductible by him. For the year 2001, $20,000 of the $20,533 paid by John Crawford to Tracey Callwood was properly included in her income and was deductible by him.
The appeal of Tracey Callwood for 2000 is dismissed. Her appeal for 2001 is allowed, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that she is entitled to have her income for the year reduced by $533.
Signed at Ottawa, Canada, this 20th day of April, 2007.
E.A. Bowie
Bowie J.
COURT FILE NO.: 2004-2013(IT)I
STYLE OF CAUSE: TRACEY CALLWOOD and
HER MAJESTY THE QUEEN and ESTATE OF JOHN G. CRAWFORD
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: March 26, 2007
REASONS FOR JUDGMENT BY: The Honourable Justice E.A. Bowie
DATE OF JUDGMENT: April 2, 2007
APPEARANCES:
|
Agent for the Appellant: |
Darrell Callwood |
|
Counsel for the Respondent: |
Aleksandrs Zemdegs |
|
Agent for the Third Party: |
Suzanne Crawford |
COUNSEL OF RECORD:
Firm: N/A
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Canada