Date: 20021105
Docket: 2002-46-IT-I
BETWEEN:
SARAH HALLETT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bowie J.
[1] The Appellant was married at one time to Rodney Hallett, whom I shall call Rodney. They separated in July 1994, and in September 1995 she obtained a court order requiring Rodney to pay her maintenance of $200 per month for their two children, who were in her custody. She remained in possession of the mobile home in which they had been living, and which they owned jointly. Rodney did not fulfill his payment obligation, and by February 1999, the arrears that he owed amounted to $5,592.70. At that time he had a job and was able to make payments monthly. However, Rodney's pattern was to avoid payment of the arrears, and he had previously left jobs as soon as his wages were attached to pay them, and so the Appellant proposed to him that he should convey to her his interest in the mobile home, and she would forgive the arrears. He could then simply make the current monthly payments as they fell due. For her part, the Appellant would benefit by having full ownership of the home for herself and her children, and also by receiving the future monthly maintenance payments regularly. He agreed to this proposal, and the transaction took place in November 1999.
[2] They executed an agreement whereby Rodney sold his interest in the mobile home to the Appellant for $6,200. The Appellant had previously estimated that the value of his interest was $6,000, and the exact amount of $6,200 was fixed between them by negotiation. He insisted that the written agreement show that amount, as some nine months had elapsed since February 28, 1999, when she had advised the Family Maintenance Enforcement Office of their agreement and it had cancelled the arrears then owing. The Appellant testified that in spite of this, no money changed hands between them in November, so the real consideration was the exact amount of the arrears that were forgiven in February. In her income tax return for that year, the Appellant did not include the amount of $5,592.70 in her income. The Minister took the view that she should have done so, and he has reassessed her accordingly. She now appeals from that reassessment.
[3] There has been no variation of the support that the Appellant is entitled to be paid since the original order was made in 1995. It is not in dispute, therefore, that the Appellant is obliged to take into income the maintenance payments received by her. The only issue between the parties is whether that amount includes the value of the half interest in the trailer that Rodney conveyed to her. The legislative scheme is complex; however for present purposes it is only necessary to determine if the interest in the trailer falls within the meaning of the phrase "support amount" as it appears in paragraph 56(1)(b) of the Income Tax Act. That paragraph defines the amount that a recipient of support must bring into income through an elaborate formula. Under that formula the total of all support amounts received must be included in the calculation. The expression is defined in subsection 56.1(4):
"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 is accordance with the laws of a province.
The Appellant argued that the half interest in the mobile home that she received does not fall within that definition for three reasons: it is not an "amount"; it was not paid on a periodic basis; and she did not have discretion as to the use of it.
[4] The first of these arguments requires an examination of the definition of the word "amount" which is found in subsection 248(1) of the Act:
"amount" means money, rights or things expressed in terms of the amount of money or the value in terms of money of the right or thing, except that,
(a ...
There can be no doubt that the interest in the mobile home that passed to the Appellant is a "right or thing", and the value of it is established by the transaction between the Appellant and Rodney. The Appellant herself estimated the value at $6,000, and the transaction between them was certainly at arm's length. The same result has been reached in the past by Bonner J.,[1] and by O'Connor J.[2] If the value of payments in kind were not payments for purposes of the Act, the profits derived from a great many business transactions would be immune from taxation; it is for that reason that Parliament defined "amount" the way that it did. The Appellant's first argument cannot succeed.
[5] As to the argument that the "payment" is not periodic, it has been held many times that when periodic payments of maintenance fall into arrears and are later paid in a lump sum, that lump sum satisfies the requirement that payments must be periodic to qualify for deduction and to be subject to inclusion. That argument also fails.
[6] The Appellant's position was that she did not have discretion as to the use of the "amount" in this case because it was not in the form of cash, and so she could not spend it. That argument fails for two reasons. First, the question whether the recipient has discretion with respect to the use of the payment is a matter to be determined from the terms of the order or agreement under which the payment is required to be made. The question is whether the judge in ordering the payment earmarked it for a particular purpose such as school fees, mortgage payments or the like. If not, then the recipient has discretion as to its use. In any event the Appellant did have discretion in the legal sense, although not perhaps in the practical sense. There was no legal impediment to her selling the mobile home and using the proceeds for any purpose that she chose. I appreciate that she felt she could not do that because she and her children needed the home to live in. However, she could have used the proceeds of a sale to buy a different home, or to rent a home for them. While she may have felt that she had no alternative, it would be more accurate to say that she had no preferable alternative course of action.
[7] The Appellant relied on the decision of Mogan J. in Fisher v. The Queen.[3] Although superficially similar to this one, that case must be distinguished. There the Appellant owed some $12,000 to her former spouse as an equalization payment upon the distribution of the family assets, as she had retained their jointly owned house, while the former spouse owed her some $7,558 in arrears of support payments. When the final divorce judgment was granted, the Court ordered a set-off of the one debt against the other, and also reduced the support payments to be made by the former husband for a period to offset the balance of the equalization payment. There is a significant difference between an amount being set off as part of the order of the Court, and the parties entering into a transaction of purchase and sale. The judge in Fisher was exercising powers under the Family Law Act of Ontario that enabled him both to cancel the arrears that had accumulated under the interim Order, and to order a lesser amount of maintenance than he otherwise would have in view of the imbalance in the distribution of family assets. There is no similar order in this case and, as has been said many times by the Federal Court of Appeal and the Supreme Court of Canada, I must decide the case according to the facts that actually occurred, not according to what the facts might have been had the parties acted differently. I cannot deal with this case on the basis of an order that was never made.
[8] I appreciate that the Appellant has suffered a good deal of hardship over a period of years as a result of her former husband's refusal to meet his support obligations as they fell due. She also found herself in a difficult financial position as a result of taking a non-cash asset in payment of the arrears that were due to her. She is required not only to pay the income tax, but the increase in her income as a result of the reassessment has resulted in a decrease in her entitlements to both the child tax benefit under the Act and family bonus payable to her under British Columbia law. She is required now to make repayment of these overpayments, as well as paying the additional income tax. However, she would have had the same amount of income tax to pay, and the same lower benefits payable to her, if she had been paid the arrears in cash. In the meantime, she has had the benefit of the full ownership of the mobile home, equivalent to the cash she did not receive. The law has not dealt more harshly with her than it would have if she had received cash; she simply finds that she has less liquid assets to live on because she has purchased a 50% interest in a mobile home at a time when she was attending college and so having difficulty making ends meet.
[9] The appeal must be dismissed.
Signed at Ottawa, Canada, this 5th day of November, 2002.
|
"E.A. Bowie" |
J.T.C.C.
COURT FILE NO.: 2002-46(IT)I
STYLE OF CAUSE: Sarah Hallett and
Her Majesty the Queen
PLACE OF HEARING: Regina, Saskatchewan
DATE OF HEARING: October 23, 2002
REASONS FOR JUDGMENT BY: The Honourable Judge E.A. Bowie
DATE OF JUDGMENT: November 5, 2002
APPEARANCES:
For the Appellant: The Appellant herself
Counsel for the Respondent: Anne Jinnouchi
COUNSEL OF RECORD:
For the Appellant:
Name: --
Firm: --
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2002-46(IT)I
BETWEEN:
SARAH HALLETT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on October 23, 2002, at Regina, Saskatchewan, by
the Honourable Judge E.A. Bowie
Appearances
For the Appellant: The Appellant herself
Counsel for the Respondent: Anne Jinnouchi
JUDGMENT
The appeal from the assessment of tax made under the Income Tax Act for the 1999 taxation year is dismissed.
Signed at Ottawa, Canada, this 5th day of November, 2002.
|
"E.A. Bowie" |
J.T.C.C.