Date: 20020516
Docket: 2001-2754-IT-I
BETWEEN:
VASSILIOS KATSORAS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Bell, J.T.C.C.
ISSUE:
[1] The issue is whether the amount of $15,929 ("Amount") paid by the Appellant in his 1990 taxation year for the support of his children is deductible in computing his taxable income for that year.
FACTS:
[2]1. Anne Katsoras ("Anne"), the then wife of the Appellant, filed a Statement of Claim claiming from the Appellant, inter alia, custody and support of the three children of the marriage. The Statement of Claim was issued on September 22, 1995 by R.P. Zigler, solicitor for Anne.
2. On October 10, 1995 the Ontario Court (General Division) gave Anne, inter alia, interim custody of the children and ordered interim support payment by the Appellant of $1,150 per month. The parties executed Minutes of Settlement on December 11, 1996 providing, inter alia, for Anne having custody of, and the Appellant having reasonable access to, the children and for payment by the Appellant to Anne of child support in the sum of $416.66 per month, to be increased in accordance with the indexing formula set out in the Family Law Act.
3. The Appellant filed a Petition for Divorce in the Ontario Court (General Division) on March 7, 1996 seeking only a divorce and costs.
4. The Appellant produced to the Court a form of draft Judgment of the Ontario Court (General Division) and a letter from R.P. Zigler to Lorne Levine, Appellant's counsel, dated October 2, 1997, stating that he had attended on April 30, 1997 before Madam Justice Benotto and obtained a Judgment, on consent, in accordance with "the draft Judgment which you sent me on April 29, 1997". [1] Although the original Judgment had been lost and no attempt had been made to obtain a copy or information respecting it, counsel for the Department of Justice acknowledged the existence of such Order for the purposes of this case. That Order provided, inter alia, that Anne have custody of the children, that the Appellant have reasonable access, and that the Appellant pay child support in the sum of $1,300 per month
5. The letter indicates clearly that the Appellant and Anne intended the continuation of deduction from, and inclusion in income under the Income Tax provision applicable prior to May, 1997. [2] It contained the following:
... there is no impediment to your proceeding with your divorce. You need not include a copy of the Judgment in your divorce record. You can simply indicate that the parties have agreed to settle the issue of child support in the sum of $1,300.00 on the basis of the pre-existing tax regime ...
The letter stated further that:
... it is still possible to preserve tax deductibility by entering into an agreement. I am forwarding to you three copies of a Separation Agreement as executed by my client. You will note that the Agreement simply sets out the terms of the Minutes of Settlement which were signed by both parties.
Without discussing the legal accuracy of the statement, it indicates further the intention of the Appellant and Anne as expressed in the pre-May, 1997 documents.
6. On October 2, 1997 Anne and the Appellant signed the Separation Agreement [3] referred to above, which, inter alia:
(a) gave custody of the children to Anne and reasonable access to the Appellant, commencing December 1, 1996;
(b) provided that such support paid by the Appellant be deducted by him and included in Anne's calculation of income for tax purposes, all pursuant to subsections 56.1(3) and 60.1(3) of the Income Tax Act ("Act") and acknowledging that the Appellant had made periodic payments of support to Anne from December 1, 1996 to December 30, 1997 in the amount of $11,500, being considered as having been made pursuant to the agreement and deductible and includable as stated above.
7. An Amended Support Deduction Notice from the Family Responsibility Office, Ministry of the Attorney General, Ontario, dated March 25, 1998 stated that the Appellant was required to pay "Ongoing Family Support payments" of $1,300 monthly.
8. Divorce Judgment dated August 24, 1998 provided that Anne and the Appellant were divorced effective September 24, 1998. It repeated provisions described above for custody of and reasonable access to the children and the payment by the Appellant to Anne as support for the children the sum of $1,300 per month.
ANALYSIS AND CONCLUSION:
[3] Respondent's counsel said that the "commencement day" of the October 2, 1997 Separation Agreement and the August 24, 1998 Divorce Judgment fell within the meaning of "commencement day". It is found in subsection 56.1(4) as follows:
"commencement day" at any time of an agreement or order means
where the agreement or order is made after April 1997, the day it is made.
[4] Counsel did not present a detailed analysis of paragraph 60(b) of the Act. It provides that:
There may be deducted in computing a taxpayer's income for a taxation year such of the following amounts as are applicable:
...
(b) support - the total of all amounts each of which is an amount determined by the formula A - (B + C)
where
A is the total of all amounts each of which is a support amount paid after 1996 and before the end of the year by the taxpayer to a particular person, where the taxpayer and the particular person were living separate and apart at the time the amount was paid,
B is the total of all amounts each of which is a child support amount that became payable by the taxpayer to the particular person under an agreement or order on or after its commencement day and before the end of the year in respect of a period that began on or after its commencement day, and
C is the total of all amounts each of which is a support amount paid by the taxpayer to the particular person after 1996 and deductible in computing the taxpayer's income for a preceding taxation year;
[5] Counsel's implied argument was that since the Amount sought to be deducted was payable after the commencement day of either the October 2, 1997 Separation Agreement or the August 24, 1998 Divorce Judgment, it would be included in B, and would be deducted from the amount in A with the result that no deduction under paragraph 60(b) would be available.
[6] Obviously, Anne and the Appellant agreed on the amount to be paid, before the effective date of the revised system denying the deduction from, and inclusion in, income, of support payments. The April 30, 1997 Order provides that:
... the Defendant shall pay to the Plaintiff as support for the children, the sum of $1,300.00 per month ...
[7] As stated above, it also provided that Anne have custody of the children and that the Appellant have reasonable access. This was a Judgment obtained from the Ontario Court (General Division), on consent. It is clear from the evidence that the Appellant always had agreed to, and but for a temporary insubstantial amount of arrears, had paid support and had no intention of not paying same. It was very much present to the minds of counsel for both Anne and the Appellant that the payments of $1,300 per month were to continue to be deductible by the Appellant and includable in Anne's income.
[8] The October 2, 1997 Separation Agreement contained a provision regarding payment of the same amount. The August 24, 1998 Divorce Judgment, made for the purpose of ordering and adjudging a divorce effective September 24, 1998, incorporated provisions from the April 30, 1997 Judgment, including the payment by the Appellant to Anne of the sum of $1,300 per month as support for the children. There was no evidence supporting the need for inclusion of anything other than the divorce order, it alone having been sought.
[9] Neither the Separation Agreement nor the Divorce Judgment created the already extant obligation of the Appellant to pay the said sum of $1,300 per month to Anne, that obligation having been established as agreed by the parties expressed in the April 30, 1997 consent Order for the purpose of avoiding the application of the post-April 30, 1997 revisions respecting income deduction and inclusion. Rather, they continued the aforesaid existing obligations.
[10] The formula set out above, contained in paragraph 60(b) applicable to the post-April 30, 1997 period includes in B the words:
... amount that became payable by the taxpayer ... under an agreement or order on or after its commencement day ...
Such wording clearly implies that the amount of $1,300 had not been payable prior either to the Separation Agreement or the Divorce Judgment. That is not the case. Accordingly, the Amount, consisting of monthly payments of $1,300, is not included in B in the paragraph 60(b) formula with the result that the sum is deductible by the Appellant for his 1999 taxation year.
Signed at Ottawa, Canada this 16th day of May, 2002.
"R.D. Bell"
J.T.C.C.
COURT FILE NO.: 2001-2745(IT)I
STYLE OF CAUSE: Vassilios Katsoras v. Her Majesty the Queen
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: May 7, 2002
REASONS FOR JUDGMENT BY: The Honourable Judge R.D. Bell
DATE OF JUDGMENT: May 16, 2002
APPEARANCES:
Counsel for the Appellant: Lorne Levine
Counsel for the Respondent: Eric Sherbert
COUNSEL OF RECORD:
For the Appellant:
Name: Lorne Levine
Firm: Lorne Levine
Toronto, Ontario
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-2754(IT)I
BETWEEN:
VASSILIOS KATSORAS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on May 7, 2002 at Toronto, Ontario, by
the Honourable Judge R.D. Bell
Appearances
Counsel for the Appellant: Lorne Levine
Counsel for the Respondent: Eric Sherbert
JUDGMENT
The appeal from the reassessment made under the Income Tax Act for the 1999 taxation year is allowed, and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Costs are awarded to the Appellant.
Signed at Ottawa, Canada this 16th day of May, 2002.
|
"R.D. Bell" |
J.T.C.C.