Date: 20020228
Docket: 2001-2583-IT-I
BETWEEN:
ALFRED R. GROLEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Rip, J.
[1] The issue in this appeal by Alfred R. Groleau from an income tax assessment for 1999 is whether he is entitled to deduct, in computing his income, the amount of $14,000 he paid to his former spouse, Ms. Joanne Facette, as a child support payment pursuant to paragraph 60(b) of the Income Tax Act ("Act"). The appellant says the amount is deductible since it was "a full and final payment of arrears of child support under [a] judgment of 1991" of the Ontario Court (General Division) requiring him to pay his former spouse $200 per month as support for their two children.
[2] Mr. Groleau and Ms. Facette divorced on December 10, 1986 pursuant to an order of the Quebec Superior Court. During the marriage they had two children, Joanne Angel born on March 16, 1977 and Alfred Richard born on February 14, 1980. Ms. Facette had custody of the children.
[3] By order of the Quebec Superior Court dated May 23, 1986, Mr. Groleau was required to pay to his former spouse as support for their children the sum of $100 per month starting May 1, 1986, ("Order No. 1" paragraph 3).[1] All arrears of support payments accumulated to April 30, 1986 were cancelled.
[4] The Ontario Court (General Division) by Order dated July 22, 1991 varied the judgment of the Quebec Superior Court by increasing Mr. Groleau's "obligation to pay support for the children of the marriage . . . from $100 per month to $200 per month". ("Order No. 2" paragraph 1).
[5] As of April 1, 1999, the amount of child support that Mr. Groleau was required to pay to his former spouse pursuant to Order No. 2 had fallen into arrears of $19,808.
[6] Mr. Groleau applied to the Ontario Court (General Division) for a variation of Order No. 2 to cancel all arrears and ongoing child support. Eventually Mr. Groleau and Ms. Facette agreed to settle the action. Among other things, Mr. Groleau and Ms. Facette agreed in Minutes of Settlement that upon payment by him to her of the sum of $14,000, ". . . all arrears accumulated under the Judgment dated July 22, 1991 [Order No. 2] shall be cancelled" and that since neither child was at the time a "child of the marriage", as defined by the Divorce Act, 1985, Mr. Groleau no longer had any obligation towards his former wife.[2] On May 10, 1999 the Ontario Court confirmed the agreement and ordered that the arrears of child support under Order No. 2 "are fixed at $14,000" ("Order No. 3"). Mr. Groleau paid the $14,000 to his former spouse in 1999.
[7] Mr. Groleau testified that he offered to pay Ms. Facette $14,000 to extinguish the existing child support arrears of $19,808 and release him from any continuing liability. The $14,000, he calculated, represented the amount he actually owed her up to the time each of the children turned age 18. In his view, once a child attained the age of 18 years, he was no longer liable to pay support to his former wife for that child. The initial divorce decree and subsequent Court Orders did not address the "cut-off" date for child support.
[8] Ms. Facette saw the payment as a "cash out" or "buy out", it was less than what she was owed. She said she accepted the offer because the appellant was in "difficult straits" and their daughter was "pressuring" her to settle.
[9] The position of the Minister of National Revenue ("Minister") is that the $14,000 payment was a final settlement in regard to the appellant's support requirements described in Order No. 2 and released the appellant from any further obligations to pay support. The payment was a lump sum payment made pursuant to Order No. 3 and not to Order No. 2. The $14,000 was not paid as an allowance on a periodic basis for the maintenance of the children of the marriage as required under paragraph 60(b) of the Act.
[10] Paragraph 60(b) 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) 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;
[11] The terms "child support amount", "commencement day" and "support amount" are defined in subsection 56.1(4) of the Act:
"child support amount" means any support amount that is not identified in the agreement or order under which it is receivable as being solely for the support of a recipient who is a spouse or common-law partner or former spouse or common-law partner of the payer or who is a parent of a child of whom the payer is a natural parent.
"commencement day" at any time of an agreement or order means
(a) where the agreement or order is made after April 1997, the day it is made; and
(b) where the agreement or order is made before May 1997, the day, if any, that is after April 1997 and is the earliest of
(i) the day specified as the commencement day of the agreement or order by the payer and recipient under the agreement or order in a joint election filed with the Minister in prescribed form and manner,
(ii) where the agreement or order is varied after April 1997 to change the child support amounts payable to the recipient, the day on which the first payment of the varied amount is required to be made,
(iii) where a subsequent agreement or order is made after April 1997, the effect of which is to change the total child support amounts payable to the recipient by the payer, the commencement day of the first such subsequent agreement or order, and
(iv) the day specified in the agreement or order, or any variation thereof, as the commencement day of the agreement or order for the purposes of this Act.
"support amount" means an amount payable or receivable as an allowance on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and children of the recipient, if the recipient has discretion as to the use of the amount, and
(a) the recipient is the spouse or common-law partner or former spouse or common-law partner of the payer, the recipient and payer are living separate and apart because of the breakdown of their marriage or common-law partnership and the amount is receivable under an order of a competent tribunal or under a written agreement; or
(b) the payer is a natural parent of a child of the recipient and the amount is receivable under an order made by a competent tribunal in accordance with the laws of a province.
[12] Respondent's counsel relied on M.N.R. v. Armstrong, 56 DTC 1044 (S.C.C.), to support the assessment. In Armstrong, the divorce decree provided for the payment of $100 per month to the taxpayer's wife for the maintenance of their daughter. The payments ordered were made until that time where the wife accepted a lump sum of $4,000 in full settlement of all amounts payable in the future. In concluding that the payment of $4,000 did not fall within the terms of paragraph 60(b) of the Act, Kellock J. relied on the fact that the sum "... was not an amount payable pursuant to" or "conformément à" (to refer to the French text) the decree but rather an amount paid to obtain a release from the liability thereby imposed."[3] As Locke J. stated, the amount was ". . . paid in consequence of the liability imposed by the [divorce] decree for the maintenance of the infant . . .", but was not paid pursuant to the divorce decree.[4]
[13] Counsel also referred to the decision of my colleague Judge Mogan in Widmer v. Canada, [1995] T.C.J. No. 1115 (Q.L.). In Widmer, the taxpayer accepted a $15,000 settlement from her former spouse in lieu of the $26,000 owed to her for outstanding child support payments. The Minister included the $15,000 in the taxpayer's income. The taxpayer argued that the payment was neither a periodic payment nor a maintenance payment but was a lump sum settlement and therefore was not to be included in her income. My colleague stated at paragraph 15 that:
. . . When the amount actually received ($15,000) is so different from and so much smaller than the amount owed ($50,590), I cannot regard the amount received as having the same character as the amount owed. In other words, I cannot regard the $15,000 amount received by the Appellant as having been received for the maintenance of the three children. In my opinion, this small amount was paid by David in one lump sum firstly, to obtain a release from his very real liability to pay the remaining $35,590, and secondly, to obtain a reduction in the aggregate amount of his monthly maintenance payments from $795 per month to $600 per month. In summary, the $15,000 amount was paid to obtain a release from existing obligations and a reduction in future obligations, and not for the maintenance of the three children.
[14] Respondent's counsel distinguished the facts at bar from the facts in Soldera v. M.N.R, [1991] T.C.J. No. 142 (Q.L.). In Soldera, the taxpayer was initially ordered to pay $200 per month in child support. The order was subsequently varied after the payments fell into arrears to provide for $100 per month plus $7,500 in arrears. After the taxpayer made the payment in arrears, the Minister disallowed the $7,500 deduction on the basis that it was not a periodic payment for the purposes of paragraph 60(b) of the Act. Judge Garon (as he then was) determined that the lump sum payment was deductible because it merely crystallized the amounts due periodically under the first order and really represented a portion of the arrears of maintenance payments that were an allowance payable "on a periodic basis" under paragraph 60(b). It was also noted that the taxpayer had not been released from any existing or future liability in respect of the maintenance of his children.
[15] In the present case, it is clear that the appellant approached his former spouse and offered to pay her $14,000 to extinguish the already existing child support arrears of $19,808 and to release him from any continuing liability under Order No. 2. Hence, the payment of the $14,000 could not be said to be an allowance payable on a periodic basis for the maintenance of the children of the marriage as required under paragraph 60(b) and is not deductible. The lump sum payment in Soldera represented approximately what the taxpayer was required to pay under a previous order and there was no extinguishment of present or future obligations. I agree that Armstrong and Widmer support the assessment.
[16] Respondent's counsel also submitted that even if the $14,000 payment is found to be a "support amount", the formula in paragraph 60(b) of the Act would deny the appellant from deducting the $14,000 from his income.
[17] Prior to April 1997, child support payments were deductible to the payor and included in the income of the recipient. Following the 1997 amendments to the Act, child support amounts that became payable under an agreement on or after its commencement day, as defined in subsection 56.1(4), are not deductible from the payor's income. This was explained by Bowman A.C.J. in Kovarik v. Canada, [2001] T.C.J. No. 181 (Q.L.) as follows at paragraphs 8 and 9:
Under what I may describe as the old régime (pre May 1997) spouses making payments to separated or ex spouses for the support of children could deduct those payments and the recipient had to include them in income. Following the decision of the Supreme Court of Canada in Thibaudeau v. Canada, [1995] 2 S.C.R. 627, the legislation changed. So long as a pre May 1997 agreement remained unchanged the deduction/inclusion system under the old régime prevailed.
If a new agreement were entered into, or an old agreement was changed in a particular way, the deduction/inclusion régime ceased and only payments made up to the "commencement day", as defined, were deductible by the payor and includible by the payee.
[18] In O'Neill v. Canada, [2001] T.C.J. No. 429 (Q.L.), the appellant made monthly payments to his former spouse for child support. The payments were made pursuant to a written Separation Agreement dated September 1, 1995, that was amended on three occasions: May 6, 1996, July 1, 1997 and January 1, 1998. The January 1, 1998 agreement increased the child support amounts payable to the recipient. In O'Neill, I stated that:
9. What must be determined is whether the amounts paid by Mr. O'Neill during the 1998 taxation year were child support amounts within the meaning of the Act and if so, whether they were payable on or after the agreement's commencement day within the meaning of the Act.
10. The definition of "child support amount" in subsection 56.1(4), provides that each amount of support payable under an agreement or order that is not identified in the agreement as being solely for spousal support is an amount payable for child support. It would follow that the amounts paid by the appellant are child support amounts within the meaning of the Act.
11. The definition of "commencement day" in subsection 56.1(4) applies to the facts at bar: when after April 1997, a written agreement made before May 1997 is varied to change the child support amounts payable to the recipient, the day on which the first payment of the varied amount is required to be made becomes the commencement day. The original written agreement was made on September 1, 1995, that is, before May 1997. However, it was finally varied on January 1, 1998 to change the child support amounts payable to the recipient, beginning on January 1, 1998. Whether the appellant and his former spouse intended to modify the tax treatment of the support amounts when they varied their agreement is not relevant. As stated by Bowman A.C.J. in Kovarik, supra, at paragraph 15, "[the] definition of commencement day in subsection 56.1(4) is not difficult to understand... . I do not see how the plain words of the definition can be avoided, however sophisticated the rules of statutory interpretation one may choose to use may be". The child support amounts paid in 1998 were therefore paid on or after the agreement's commencement day in respect of a period that began on or after its commencement day. It would follow that these amounts are not deductible from the appellant's income.
[19] If I had determined above that the $14,000 payment was a "support amount", it would follow that the payment would also be a "child support amount", as Order No. 3 does not state that the payment was solely for the appellant's former spouse. It is clear that Order No. 3 varied Order No. 2 and that the $14,000 was payable under Order No. 3, which was dated May 10, 1999. Therefore, the $14,000 became payable by the appellant to his former spouse on or after its "commencement day" and if the $14,000 were a child support amount, it would not be deductible from the appellant's income by reason of paragraph 60(b)(B).
[20] The appeal is therefore dismissed.
Signed at Ottawa, Canada, this 28th day of February 2002.
"Gerald J. Rip"
J.T.C.C.
COURT FILE NO.: 2001-2583(IT)I
STYLE OF CAUSE: Alfred R. Groleau v. The Queen
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: January 21, 2002
REASONS FOR JUDGMENT BY: The Honourable Judge G.J. Rip
DATE OF JUDGMENT: February 28, 2002
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: Gabrielle St-Hilaire
Justine Malone
COUNSEL OF RECORD:
For the Appellant:
Name:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-2583(IT)I
BETWEEN:
ALFRED R. GROLEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on January 21, 2002 at Ottawa, Ontario, by
the Honourable Judge Gerald J. Rip
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Gabrielle St-Hilaire
Justine Malone
JUDGMENT
The appeal from the assessments made under the Income Tax Act for the 1999 taxation year is dismissed.
Signed at Ottawa, Canada, this 28th day of February 2002.
|
"Gerald J. Rip" |
J.T.C.C.
[1] Paragraph 3 of Order No. 1 read as follows:
3. Le requérant s'engage à payer à l'intimée, à titre de pension alimentaire pour les enfants, la somme de $100.00 par mois, payable le premier jour de chaque mois à la résidence de l'intimée et ce à compter du 1er mai 1986;
[2] The Divorce Act defines "child of the marriage" as:
a child of two spouses or former spouses who, at the material time,
(a) is under the age of majority and who has not withdrawn from their charge, or
(b) is the age of majority or over and under their charge but unable, by reason of illness, disability or other cause, to withdraw from their charge or to obtain the necessaries of life;
Although each child had reached the age of majority in Ontario and Quebec, the issue of whether each had withdrawn from their parent's charge was not raised at trial. Mr. Groleau did say the children were not living with their mother at time of payment. I do not make any finding with respect to whether either child, at time of payment, was a "child of the marriage".
[3] Page 1045.
[4] Page 1046.