Date: 20000516
Docket: 1999-42-IT-I
BETWEEN:
AMI KAMINSKI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Lamarre Proulx, J.T.C.C.
[1] This is an appeal concerning the 1991 taxation year.
[2] The questions at issue in this appeal concern the deductibility of payments made by the Appellant to third parties for the benefit of his ex-spouse.
[3] The Minister of National Revenue (the "Minister") has considered that in the year 1991 there were two different periods to be taken into account in assessing the Appellant for that year. There is the pre-divorce period and the post-divorce period. The judgment of divorce was rendered on July 4, 1991(Exhibit A-2). A consent to interim measures was signed on September 18, 1987 (Exhibit A-1). Thus the Minister disallowed payments made to third parties from July 4, 1991. However some expenses were disallowed for the whole year 1991 as not coming within the meaning of maintenance.
[4] The Minister has established these two periods in view of the effect of the enactment of subsection 56(12) of the Income Tax Act (the "Act"). That subsection was added in 1988 applicable with respect to decrees, orders, judgments and written agreements made or entered into before March 28, 1986 or after 1987. That subsection was enacted for the purpose of modifying the decision of the Supreme Court of Canada in Gagnon v. The Queen, 86 DTC 6179.
[5] The facts of this appeal are described at paragraphs 2, 5 and 6 of the Reply to the Notice of Appeal (the "Reply").
2. On March 10, 1994, in reassessing the Appellant for the 1991 taxation year, the Minister of National Revenue (the Minister) disallowed in the calculation of the net income, an amount of $35,292 claimed as alimony or maintenance payments.
...
5. On September 30, 1998, in reassessing the Appellant for the 1991 taxation year, the Minister revised to an amount of $21,087 the deduction claimed as alimony or maintenance payments.
6. In reassessing the Appellant for the 1991 taxation year on September 30, 1998, the Minister made the following assumptions of fact:
a) during the 1991 taxation year, the Appellant was living apart from his former spouse, Mrs. Charlene Laprise;
b) in conformity with written agreement signed by both parties on September 18, 1987, the Appellant was required to make maintenance payments to third parties on behalf of his separated spouse and alimony payments directly to her;
c) on July 4, 1991, the Honourable Judge Yvan Macerola rendered a Judgment of Divorce between the Appellant and Charlene Laprise and maintained till December 31, 1991 the requirement by the said Appellant to make the maintenance payments to third parties on behalf of his former spouse and alimony payments directly to her;
d) the Appellant claimed the maintenance payments to third parties on behalf of his former spouse and alimony payments paid directly to her as follow:
i) alimony payments $ 11,700.00
ii) condo mortgage interest 8,287.50
iii) condo taxes 2,601.31
iv) condo insurance 473.80
v) condo fees 3,900.00
vi) condo hydro 1,579.50
vii) cable T.V. 279.00
viii) clothing 3,000.00
ix) car insurance 278.00
x) car license 193.00
xi) car maintenance $ 3,000.00
$35,292,11
e) the Minister maintained the deduction for alimony payments totalling $11,700;
f) the Minister interpreted the word maintenance as to mean the provision of the necessities of life and therefore considered, as non deductible, the following expenses:
i) cable T.V.
ii) car insurance
iii) car license
iv) car maintenance;
g) the Minister considered, since the final judgment of divorce dated July 4, 1991 did not specifically state the application of subsection 60.1(2) and 56.1(2), that any payment to third parties for the maintenance of basic needs made after this date are not deductible, and consequently allowed the following maintenance payments:
i) condo mortgage interest (8,287.50) $ 4,144
ii) condo taxes 1,031
iii) condo fees (3,900) 1,950
iv) condo hydro (127 x 6 months) 762
v) clothing (250 x 6 months) $ 1,500
$ 9,387
[6] The Appellant was the only witness. He produced the Consent to Interim Measures (the "Consent") between himself and his ex-wife as Exhibit A-1. As previously mentioned, the consent is dated September 18, 1987. Therefore paragraph 56(12) of the Act was not applicable to it. The judgment of divorce was rendered on July 4, 1991. Therefore paragraph 56(12) would be applicable to this judgment. The Reasons for the judgment of divorce were rendered on April 1, 1992. They were produced as Exhibit A-3.
[7] Article 2 of the Consent (Exhibit A-1) provides for an alimentary pension of $225 per week payable to the ex-wife. The total amount of $11,700 was allowed by the Minister.
[8] Article 3 is to the effect that the wife had the right of habitation of the matrimonial domicile. Article 4 provides that the Appellant shall continue to pay the expenses of the common domicile: mortgage, taxes, insurance, condo fees, electricity and cable T.V. The evidence revealed that these payments were made to third parties not to the Appellant's ex-wife.
[9] Article 5 foresees the periodic payment of $250 per month of clothing credit at a specified store. Respecting this item, counsel for the Respondent informed the Court that this was no longer in dispute and that the Minister consented to its allowance.
[10] Article 6 states that the Appellant shall arrange that gas, to a maximum of $150 per month, be paid by the defendant’s employer, that is in the present appeal the Appellant's employer.
[11] The judgment of divorce continued part of the effect of the Consent until the end of the year 1991. For the pertinent part it reads as follows:
... the status quo shall prevale for the pension, the condo expenses and the allowances for the car maintenance and gaz and clothing until December 31, 1991, after which date all these benefits including the pension, shall cease automatically;
[12] What is at issue for the whole year 1991, is the disallowance of the expenses related to cable T.V., car insurance, car license and car maintenance. As mentioned in the Reply, the Minister interpreted these words as not being within the meaning of maintenance.
[13] It is my view that there is no need to decide as to whether these expenses are within the meaning of maintenance. It will suffice to determine whether they were allowances or whether they come within the meaning of subsection 60.1(2) of the Act.
[14] I wish to refer to the judgment of the Federal Court of Appeal in The Queen v. Pascoe, 75 DTC 5427, at page 5428 as to the meaning of an allowance:
First, we are of opinion that the payment of those sums did not constitute the payment of an allowance within the meaning of section 11(1)(l). An allowance is, in our view, a limited predetermined sum of money paid to enable the recipient to provide for certain kinds of expense; its amount is determined in advance and, once paid, it is at the complete disposition of the recipient who is not required to account for it. A payment in satisfaction of an obligation to indemnify or reimburse someone or to defray his or her actual expenses is not an allowance; it is not a sum allowed to the recipient to be applied in his or her discretion to certain kinds of expense.
Furthermore, even if the payment of the expenses here in question could be construed as the payment of an allowance, it was not, in our view, an allowance "payable on a periodic basis" as required by section 11(1)(l). The payment was not determined by the separation agreement and the decree nisi to be at fixed recurring intervals of time. Indeed, the agreement and decree said nothing about when payment of the expenses must be made. It is not relevant that the educational expenses may, in fact, have been paid on a periodic basis since the periodicity required by the statute refers to the manner in which the allowance is payable, not to the manner in which it is in fact paid.
[15] The Supreme Court of Canada in Gagnon v. The Queen, 86 DTC 6179 at pages 6182 and 6183 confirmed this view:
According to the definition in Pascoe, for a sum of money to be regarded as an "allowance" it must meet three conditions: (1) the amount must be limited and predetermined; (2) the amount must be paid to enable the recipient to discharge a certain type of expense; (3) the amount must be at the complete disposition of the recipient, who is not required to account for it to anyone.
The first two conditions may be explained by inference from s. 60(b) of the Income Tax Act. The amount must be limited and predetermined in accordance with the judgment, order or written agreement setting it. It must be paid to enable the recipient to discharge a certain type of expense, namely an expense incurred for the maintenance of the recipient.
But what is the reason for the Pascoe judgment imposing the third condition, which clearly cannot be inferred from s. 60(b)?
...
According to Pascoe, this condition means that the recipient must be able to apply this amount to certain types of expense, but at her discretion and without being required to account for it.
However, the condition could also mean that the recipient must be able to dispose of the amount completely, and that, provided she benefits from it, it is not relevant that she has to account for it and that she cannot apply it to certain types of expense at her complete discretion.
It seems to me, with respect, that the second interpretation is the correct one, in light of the earlier decisions which Pascoe appears to have misinterpreted.
What matters is not the way in which a taxpayer may dispose of, or be required to dispose of, the amounts he receives, but rather the fact of whether he can dispose of them or not.
[16] The decision in Gagnon (supra) was rendered on the fact that the payments were predetermined as to their amounts, they were to be paid on a periodic basis to the ex-wife, not to third parties. The purpose of the payments was however specified: the mortgage payments. It was that specification which meant accountability to the payor that bothered the Minister and led to the enactment of subsection 56(12) of the Act.
[17] Respecting the amounts at issue for the whole year 1991 (paragraph 12 of these Reasons and paragraph 6(f) of the Reply appearing at paragraph 5 of these Reasons), these amounts were not paid to the ex-wife therefore they are not deductible under paragraphs 60(b) or (c) of the Act. They cannot be deducted either pursuant to subsection 60.1(1) of the Act. This is a provision that applies when the amounts have been predetermined by the judgment or the written agreement and are to be paid on a periodic basis. The payments in question were not predetermined as to their amounts and were not to be paid on a periodic basis. Moreover, the amounts related to the car maintenance were not to be paid by the Appellant under the terms of the Consent as mentioned in paragraph 10 of these Reasons. The said amounts cannot be deducted pursuant to subsection 60.1(2) of the Act as the specific wording required by that subsection is not part of the agreement nor the judgment. That wording is that subsection 56.1(2) and subsection 60.1(2) shall apply to such a payment and that payment will be deemed to be an amount paid as an allowance payable on a periodic basis.
[18] Respecting the amounts that were disallowed for the post-divorce period, (paragraph 6(g) of the Reply appearing at paragraph 5 of these Reasons) they concern the condo mortgage interest, the condo taxes, the condo fees and the condo hydro. These payments are not deductible for the same reasons given above.
[19] The Appellant submitted the decision of this Court in Pelchat v. The Queen, 97 DTC 945. The facts of this decision are different than those of the present appeal. The clause in the judgment stated that as an alimentary pension predetermined payments were to be made on a monthly basis. The decision does not state whether the payments were to be made to the ex-spouse or to third parties. But in any event there was a clause in the agreement that was interpreted by the judge as having the meaning of the wording specified in subsection 60.1(2) of the Act.
[20] The appeal is allowed for the part consented to by Counsel for the Respondent regarding the clothing allowance. The Appellant is entitled to no further relief.
Signed at Ottawa, Canada, this 16th day of May, 2000.
"Louise Lamarre Proulx"
J.T.C.C.