Date: 19990325
Docket: 97-3655-IT-I
BETWEEN :
ROBERT DEMEY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for judgment
Lamarre, J.T.C.C.
[1] The appellant has appealed from an assessment made by the Minister of National Revenue (“Minister”) under the Income Tax Act (“Act”). In that assessment, the Minister disallowed the $9,100 deduction claimed by the appellant as alimony or other allowance payable on a periodic basis. The Minister relied on paragraph 60(b) and subsection 60.1(1) of the Act in support of his arguments.
[2] I heard the testimony of the appellant. According to an initial judgment by the Quebec Superior Court, Family Law, dated March 10, 1993 (Exhibit I-1), the appellant undertook to pay to his former spouse, Murielle Hooper, for their two children, born March 4, 1975 and July 25, 1976, support in the amount of $465 every two weeks. That amount was to be indexed to the cost of living on an annual basis. Under the judgment, the appellant agreed that [TRANSLATION] “all provincial and federal income tax and other taxes, where applicable, [would be] paid by [the appellant]” (Exhibit I-1, paragraph 4). As well, paragraph 14 of the draft agreement appended to that judgment (also in Exhibit I-1) provides:
[TRANSLATION]
Each party shall ensure that the other is provided with all the documents that each of them needs in order to determine the amount of income taxes, other taxes, loans and payments so that they can do the exact calculations required for the purposes hereof, and as well, mutually authorize each other to seek information from the persons who are capable of providing them with the said figures and amounts.
[3] The appellant said in his testimony that after that judgment he had never taken any deduction for alimony and his former spouse had not included any amount relating to alimony in her income.
[4] During 1995, the appellant’s financial situation changed and he no longer had the same ability to pay.
[5] He was advised to retain counsel in order to submit a new draft, varying the support payments payable to his former spouse for their children. The lawyers for the appellant and his former spouse thus agreed on a consent to judgment on September 11, 1996 (Exhibit I-2). That consent was approved by a judge of the Quebec Superior Court on September 12, 1996.
[6] Under that consent to judgment, the appellant agreed with his former spouse that he would pay the support directly to his children beginning on September 6, 1996. It was agreed at that time that he would pay support in the amount of $87.50 per week to each of them, and that the support would be taxable in the hands of the children and deductible by the appellant. It was also agreed in that consent that all amounts paid to the former spouse before September 6, 1996, were to be included in the children’s income and to be deductible by the appellant as alimony. Cheques were entered in evidence showing that the appellant had paid a total of $5,910 to his former spouse from January 1, 1996 to September 19, 1996 (see Exhibit I-3). In a written statement, the children acknowledged receiving $4,550 each from their father (see paragraph 6(a) of the Reply to the Notice of Appeal, which was admitted by the appellant).
[7] For that reason, the appellant claimed a deduction for alimony in the amount of $9,100 in respect of the 1996 taxation year.
[8] Paragraph 60(b) and subsection 60.1(1) read as follows during the year in issue:
60: Other deductions.
There may be deducted in computing a taxpayer’s income for a taxation year such of the following amounts as are applicable:
b) Alimony payments – an amount paid by the taxpayer in the year as alimony or other allowance payable on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and the children, if the taxpayer, because of the breakdown of the taxpayer’s marriage, was living separate and apart from the spouse or former spouse to whom the taxpayer 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 a decree, order or judgment of a competent tribunal or under a written agreement.
60.1: Maintenance payments.
(1) Where a decree, order, judgment or written agreement described in paragraph 60(b) or (c), or any variation thereof, provides for the periodic payment of an amount by a taxpayer
(a) to a person who is
(i) the taxpayer’s spouse or former spouse, or
(ii) where the amount is paid under an order made by a competent tribunal in accordance with the laws of a province, an individual of the opposite sex who is the natural parent of a child of the taxpayer, or
(b) for the benefit of the person, children in the custody of the person or both the person and those children,
the amount or any part thereof, when paid, shall be deemed for the purposes of paragraphs 60(b) and (c) to have been paid to and received by that person.
[Emphasis mine.]
[9] In The Queen v. Curzi, 94 DTC 6417, Noël J., then a judge of the Trial Division of the Federal Court of Canada, stated at p. 6419:
Section 60(b) permits the deduction of amounts paid to a former spouse for the benefit of the children of the marriage. Under subsection 60.1(1), an amount paid not to the former spouse but for the benefit of a child in that person’s custody is nonetheless deemed to have been paid to the spouse, so that it may still be deducted under section 60(b).
[10] In that case, Noël J. concluded that a child who had attained the age of majority could not be in the custody of his parents. In reaching that conclusion, he relied on the applicable provisions of the Civil Code of Québec and on the decision of Judge Lamarre Proulx of this Court in Guardo v. M.N.R. (89-1660(IT)), dated January 8, 1991. (The decision of Judge Lamarre Proulx was affirmed by Pinard J. of the Trial Division of the Federal Court of Canada on December 23, 1998 (file no. T-1222-91); in so doing Pinard J. relied on Curzi, supra.)
[11] The fact that the children were living with their mother does not establish that the mother had custody of them. Rights with respect to living arrangements do not derive from custody rights (see Droit de la famille - 1920, [1994] R.J.Q. 375, 378). Thus the support paid by the appellant directly to the children who had attained the age of majority cannot be deemed to have been paid to the former spouse under subsection 60.1(1) and accordingly cannot give rise to the tax deduction claimed by the appellant pursuant to paragraph 60(b) of the Act.
[12] On the question of the payments made directly by the appellant to his former spouse until September 19, 1996, the 1993 judgment specifically provided that the taxes payable by the former spouse on that support were to be paid by the appellant.
[13] The 1993 judgment did not provide that the support was not taxable in Ms. Hooper’s hands or that it was not deductible in the appellant’s hands. This is established by paragraph 14 of Exhibit I-1, supra. Under that judgment, Ms. Hooper had to include the amounts received as support in her income. The appellant was responsible for paying the tax payable by Ms. Hooper as a result of the inclusion of the support in her income. Consequently, the appellant could claim a deduction pursuant to paragraph 60(b) of the Act.
[14] Accordingly, the appellant was entitled to deduct for 1996 the $5,910 which he paid to his former spouse for the benefit of his children. Furthermore, that amount is therefore taxable in the hands of the former spouse for that year.
[15] The appellant could not agree, in the 1996 agreement, that the support payments would be taxable in the hands of the children and deductible in his hands, nor could the Quebec Superior Court approve that part of the agreement, since the agreement was in direct contravention of the Act, which does not permit such a thing.
[16] For these reasons, the appeal is allowed and the assessment is referred back to the Minister for reconsideration and reassessment on the basis that the appellant is entitled to deduct $5,910 as alimony for the 1996 taxation year pursuant to paragraph 60(b) of the Act.
Signed at Ottawa, Canada, this 25th day of March 1999.
“Lucie Lamarre”
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 25th day of January 2000.
Erich Klein, Revisor