Date: 981106
Docket: 97-2912-IT-I
BETWEEN:
DENIS R. PATRY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Christie, A.C.J.T.C.
[1] These appeals are governed by the Informal Procedure prescribed under section 18 and following sections of the Tax Court of Canada Act. The years under review are 1994 and 1995.
[2] The issues to be determined are whether the appellant is entitled to deduct $9,788.00 in computing his income for 1994 and to deduct $7,223.00 for the same purpose in respect of 1995. It is alleged that these were alimony or maintenance payments.[1]
[3] In computing his income for 1994 and 1995, the appellant sought to deduct as alimony or maintenance, $9,788.00 and $10,023.00 respectively. In reassessing, the Minister of National Revenue disallowed the $9,788.00 and all but $2,800.00 of the $10,023.00 ($10,023.00 - $2,800.00 = $7,223.00).
[4] The appellant and his former spouse, Deborah ("former spouse"), separated in 1994. One child, Joshua, was born of the marriage on August 31, 1992.
[5] There are in evidence three orders issued out of the Ontario Court (General Division). The first is dated September 26, 1994. It orders that the former spouse have exclusive possession of what had been the matrimonial home and contents; grants interim custody of Joshua to the former spouse with access by the appellant to be agreed upon by the parties; restrains the appellant from molesting, annoying, etc. the former spouse in any manner. The second order is dated November 21, 1994. It continues the terms of the order of September 26, 1994 and directs that the appellant "shall pay the Canada Trust loan of $1,000.00 per month, the Canada Trust consumer loan of $450.00 per month, and the car loan of $621.00 per month".[2] The third order is dated March 7, 1995. It orders "that there will be an assessment, the funding to be undertaken by the respondent (husband), but the total cost to be shared when all corollary matters are heard".
[6] None of the orders make any reference to subsections 60.1(2) and 56.1(2) of the Income Tax Act ("the Act"). In 1994 and 1995 the appellant made some of the payments referred to in the order of November 21, 1994, namely, the previously mentioned $9,788.00 and $7,223.00.
[7] The appellant's evidence is that his lawyer sought the order of November 21, 1994. The purpose was to ensure that these debts would be paid. Payment of them, it was said, would accrue to the benefit of the former spouse and Joshua.
[8] The following provisions[3] of the Act pertain to these appeals. Included in paragraph 60(b) is authorization to a taxpayer to deduct, in computing his income for a taxation year, an amount paid by the taxpayer as alimony or other allowance, payable on a periodic basis, for the maintenance of the recipient, children of the recipient or both, if the taxpayer, because of the breakdown of his marriage, was living separate and apart from his spouse or former spouse to whom he was required to make the payment at the time the payment was made and throughout the remainder of the year, and the amount was paid under an order of a competent tribunal. The Ontario Court (General Division) is a competent tribunal within the meaning of paragraph 60(b). The order made by that court on November 21, 1994 directed the payments to be made to Canada Trust in respect of specified debts.
[9] By operation of subsection 56(12) of the Act "allowance" in paragraph 60(b) does not include any amount that is received by a recipient unless that person has discretion as to the use of the amount.
[10] Subsection 60.1(1) deals with the receipt of amounts paid. It provides that where an order described in paragraph 60(b) provides for the periodic payment of an amount by a taxpayer for the benefit of the person, children in the custody of the person or both, the amount, when paid, is deemed for the purposes of paragraph 60(b) to have been paid to and received by that person.
[11] Subsection 60.1(2) makes deductible under paragraph 60(b) in computing a taxpayer's income amounts that would not otherwise be deductible thereunder if the order referred to in paragraph 60(b) provides therein that subsection 60.1(2) and subsection 56.1(2) shall apply to any payment made under the order. In such case the payment is, for the purpose of paragraph 60(b), deemed to be an amount paid by the taxpayer and received by the recipient as an allowance payable on a periodic basis.
[12] Counsel for the respondent relies on the judgment of the Federal Court of Appeal in The Queen v. Armstrong, 96 DTC 6315. Stone J.A. delivered the reasons for judgment on behalf of the Court. At the outset of his reasons he said at page 6316:
"The issue raised is whether the payments made by the respondent to discharge a monthly mortgage obligation including municipal taxes and arrears with respect to the matrimonial home, may be deducted by the respondent in reporting his income subsequent to November 27, 1991, for the taxation years 1991 and 1992."[4]
These facts are recited at that page:
"On November 27, 1991, the Court of Queen's Bench made a further order upon the application of the respondent's former spouse, for the maintenance of the children. This order contains the following:
'2. The respondent [Murray Armstrong] shall continue to pay the monthly mortgage obligation with respect to the matrimonial home. Such payment to include all municipal taxes and tax arrears.'
When the respondent failed to meet the monthly mortgage obligation and taxes as required by this order, the spouse obtained garnishee orders under which the respondent was required to pay amounts equal to the obligation and taxes to the spouse's solicitor. The solicitors in turn remitted these funds to the spouse who applied them against the mortgage obligation and taxes."
[13] He went on to say at page 6319 that what is deemed under subsection 60.1(2) to be an allowance payable on a periodic basis applies only where the order of the Court provides that the statutory provisions cited in the subsections, i.e. subsection 60.1(2) and 56.1(2), applies to any payment pursuant thereto.
[14] At page 6320 he dealt with subsections 60.1(1) and 56(12). He noted that 60.1(1) does not expressly incorporate the definition of "allowance" in 56(12). But it does restrict its own application to the periodic payment of an amount by a taxpayer provided for in an order described in paragraph 60(b). The description in 60(b) is for an order of a competent tribunal, as alimony or other allowance payable on a periodic basis for the maintenance of the recipient thereof, children of the marriage, or both. His Lordship went on, and I am paraphrasing: one must read the qualifying words "as alimony or other allowance" in its particular context within paragraph 60(b) for the full description of "order" referred to in subsection 60.1(1). If not, any order would theoretically fall within the description.
[15] The reasons for judgment add that the descriptive language just cited is absent from subsection 60.1(1). Further, the definition of "allowance" in subsection 56(12) was adopted, inter alia, expressly for the purpose of paragraph 60(b). Subsection 60.1(1) does not itself provide for the deduction of an amount paid and received. Instead, as previously indicated, it enlarges the right of deduction in paragraph 60(b) by deeming for the purpose of that paragraph an amount to have been paid by a taxpayer and received by the recipient. Mr. Justice Stone concluded his observations pertaining to these subsections as follows:
"In my view, the subsection 56(12) defintion of 'allowance' is to be read together with subsection 60.1(1) of the Act and the latter subsection construed accordingly. Accordingly, as the former spouse had no discretion as to the use of the moneys they cannot be deducted by the respondent from his income for the taxation years in question."
His reasons for judgment terminate with these words at page 6321:
"The respondent submitted that payments could be deducted from income in any event to the extent that they were paid pursuant to garnishee proceedings instituted by the former spouse. The garnishee proceedings resulted in the attached moneys being paid over to the former spouse's solicitors. In turn, the former spouse received the moneys and applied them in satisfaction of the obligation imposed upon the respondent by the court order of November 27, 1991. I cannot accept that in the circumstances the moneys were paid to the former spouse in such a manner as left her with a discretion as to their use. In my view, the moneys were paid pursuant to the court order of November 27, 1991 under which the respondent's obligation was created despite the fact that the former spouse found it necessary to take garnishee proceedings for the purpose of enforcing that obligation."
[16] In my opinion Armstrong governs the disposition of the appeals at hand. It is a decision of the Federal Court of Appeal and I am bound to follow and apply it. As in Armstrong, in the case at hand subsection 60.1(2) of the Act is of no assistance to the appellant in seeking deductibility under paragraph 60(b) because the order of the Ontario Court (General Division) dated November 21, 1994 does not state that subsection 60.1(2) and subsection 56.1(2) apply to any payment made thereunder.
[17] Also, subsection 56(12) is to be read together with subsection 60.1(1), and again, as in Armstrong, the former spouse had no discretion as to the use of the money paid under the order. It follows that subsection 60.1(1) can have no application in allowing the amounts in issue to be deductible under paragraph 60(b). Finally, this finding of lack of discretion precludes the deduction of the $9,788.00 or the $7,223.00 under paragraph 60(b), apart from the inapplicability of subsections 60.1(1) and (2), because the definition of "allowance" in subsection 56(12) requires the recipient to have discretion as to the use of the amount.
[18] The appeals are dismissed.
Signed at Ottawa, Canada, this 6th day of November 1998.
"D.H. Christie"
A.C.J.T.C.C.
[1] The inference to be derived from what is before the Court is that the payments in dispute were made prior to the dissolution of the marriage. As will be seen, paragraph 60(b) of the Income Tax Act provides for the deduction of an amount paid "as alimony or other allowance". Strictly speaking alimony pertains to payments made while the marriage is still in existence and other allowance refers to payments made after the marriage is dissolved. In my opinion, the considerations applicable to determining whether a deduction can be made as alimony or as other allowance are the same. Consequently authorities pertaining to what constitute a deductible allowance are equally applicable to the deductibility of payments made during the marriage.
[2] The $1,000.00 related to a mortgage on the home. The $450.00 was in repayment of a home improvement loan.
[3] For amendments to or repeal of these provisions see Statutes of Canada, 1997, c. 25, subsections 10(1), 8(3), 11(1), 11(2).
[4] The payments were made pursuant to an order of the Queen's Bench for Saskatchewan dated November 27, 1991. The reasons for judgment of the Tax Court Judge are reported in Armstrong v. The Queen, [1995] 1 C.T.C. 2718. At page 2720 reference is made to an order of the Court of Queen's Bench dated October 15, 1993. That order deals with matters such as the custody of the children, visiting rights, the occupation of the matrimonial home by Karla Armstrong and its eventual disposition. The 1993 order is almost two years later than the 1991 order. This suggests that some or all of the payments in issue were made prior to the dissolution of the marriage. Further, copy of Armstrong's return of income for 1992 was forwarded by the Deputy Minister of National Revenue to this Court as required under subsection 170(2) of the Income Tax Act. Subsection 9(1) of the Tax Court of Canada Rules (Informal Procedure) provides that the return shall be treated as part of the record of the Court. In that return Armstrong was asked this question: "On December 31, 1992 you were: married; living common-law, widowed, divorced, separated, single." He answered separated.