Tax Court of Canada Judgments

Date: 20001030

Docket: 2000-719-IT-I

BETWEEN:

ROBERT B. CLIFFE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Bell, J.T.C.C.

ISSUE:

[1]            Whether payments made by the Appellant to and on behalf of Janis Cliffe ("Janis") in the sum of $12,373 in his 1997 taxation year and in the sum of $10,248 in his 1998 taxation year were deductible by him.

FACTS:

[2]            The Appellant and Janis were married on April 14, 1973 and divorced on July 12, 1997. The union produced three children. A Consent Order of the Provincial Court of British Columbia made under the Family Relations Act on October 18, 1995 provided:

...Robert Cliffe shall pay to Janis Cliffe as and for child maintenance the sum of $350.00 per month per child, being the aggregate sum of $1,050.00, ...

[3]            In 1997 the Appellant paid $2,852 directly to Janis and the balance of the court ordered obligation, totalling $12,600, by twelve mortgage payments of $804 per month. He made these mortgage payments directly to the mortgage company because Janis had ceased making them and he wanted his children to have a continuing and uninterrupted life in the family home.[1]

[4]            The Agency, in reassessing the Appellant, allowed the deduction of only $227 of the $2,852 paid directly to Janis. It did not allow five payments of $525 each totalling $2,625.

[5]            Of the total sum of $15,162 paid by the Appellant to and on behalf of Janis in 1998, the amount of $4,914 was paid directly to her, this being the amount allowed as a deduction in that year by the Agency. The balance of $10,248 was paid to the mortgage company.

[6]            By Minutes of Settlement shown as signed on February 24, 1988, the Appellant and Janis agreed that they "shall consent to judgment of the Court in this action, on the following terms:". Those terms included the appointment of them as joint guardians and the payment of $350 per month per child to Janis[2]. They also provided that the Appellant would pay income tax payable by Janis on the amount received, that he would convey the matrimonial home to her, and that she would be responsible for all mortgage payments, taxes and utilities thereon. It provided further:

That the Respondent's name shall be removed from the mortgage on or before December 1, 1999.

This did not happen.

[7]            After an aggressive notice from the Family Maintenance Enforcement Program of British Columbia to the Appellant indicating that maintenance payments in excess of $26,000 were in arrears, he applied to the Court seeking to cancel and change the October 18, 1995 Order. Specifically, he sought a declaration that maintenance had been paid from April 1, 1995 to the date of hearing, namely October 22, 1999, that it was maintenance payable in accordance with The Child Support Guidelines and that alleged arrears of maintenance be cancelled. The Court, at such hearing, "accepted that the original agreement between the parties was that the maintenance would cover the mortgage and contribute directly to Janis for maintenance of the children". The Court said:

The Respondent's neglect reputedly endangered that purpose. In acting as he did, the Applicant simply redirected parts of the child maintenance payments to the mortgagee bypassing the unreliable middle man.

This is not a case where the payor has misdirected payments either to the children or to some asset in which he had a continuing interest, nor is it a case of failure to pay. This is a case where the Respondent's financial choices all but dictated the Appellant's response. In the circumstances of this case, considering the terms of the Minutes of Settlement and the Supreme Court Order, I am satisfied that the payments made by the Applicant to the mortgage (sic) should be considered maintenance payments for the support of the children.

[8]            The Order of the Court issued with the above "Reasons for Judgment" read in part as follows:

THIS COURT ORDERS that maintenance has been paid from April 1, 1995 to October 22, 1999 in accord with the Order of this Court of October 18, 1995 in the amount of $58,883.72;

THIS COURT FURTHER ORDERS that the application to cancel arrears of maintenance is allowed save and except $1,568[3] owing for January, 1998 through to August, 1998;

[9]            The Agency disallowed as deductions to the Appellant, the amounts in issue described above.

ANALYSIS AND CONCLUSION:

[10]          Counsel referred the Court to each of paragraph 60(b) and subsections 56(12), 56.1(2) and 60.1(2) in the form that applied only to years preceding the taxation years in question. This cast upon the Court the unnecessary burden of finding and comprehending, without assistance, the relevant provisions of the Act in order to resolve the issue. Consequently, the submissions of neither counsel are set forth. Subsection 56(12) was repealed in 1997 applicable to amounts paid and received after 1996. The other provisions were amended in 1997 applicable to amounts paid and received after 1996.

[11]          The pertinent provisions of section 60, permitting deduction, read as follows:

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;

[12]          In order for an amount to be deductible under paragraph 60(b) it must be a "support amount" paid after 1996 to a person living separate and apart. The term "support amount" 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 former spouse of the payer, the recipient and payer are living separate and apart because of the breakdown of their marriage 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.

(emphasis added)

[13]          Subsections 56.1(1), respecting inclusion in income, and 60.1(1) respecting deductibility read as follows:

56.1(1)     For the purposes of paragraph 56(1)(b) and subsection 118(5), where an order or agreement, or any variation thereof, provides for the payment of an amount to a taxpayer or for the benefit of the taxpayer, children in the taxpayer's custody or both the taxpayer and those children, the amount or any part thereof

(a)            when payable, is deemed to be payable to and receivable by the taxpayer;

and

(b)            when paid, is deemed to have been paid to and received by the taxpayer.

60.1(1)     For the purposes of paragraph 60(b) and subsection 118(5), where an order or agreement, or any variation thereof, provides for the payment of an amount by a taxpayer to a person or for the benefit of the person, children in the person's custody or both the person and those children, the amount or any part thereof

(a)            when payable, is deemed to be payable to and receivable by that person;

and

(b)            when paid, is deemed to have been paid to and received by that person.

[14]          These subsections deem payments to third parties for the benefit of a person and/or children in his or her custody to be payable to and receivable by that person and when paid, to be paid to and received by that person. Therefore, in qualifying circumstances, these provisions would deem the mortgage payments made by the Appellant to the bank to have been paid directly to Janis. This is one of the requirements for deduction under paragraph 60(b). However, the 1995 order did not, as required by subsection 60.1(1), provide for the payment of an amount by the Appellant "for the benefit of" Janis and/or the children. In any event, these payments do not qualify as "support amount" because Janis was not a recipient who had discretion as to the use of the amount.

[15]          The Appellant is not assisted by subsection 60.1(2) which, in essence, deems certain payments to constitute "support amount"[4]. The pertinent portions read as follows:

60.1(2)    For the purposes of section 60 ... amounts ... payable ... under an order of a competent tribunal or ... a written agreement, in respect of an expense incurred for the maintenance of a person, children in the person's custody and both the person and those children, where the person is ... the taxpayer's spouse or former spouse ... is ... where the order or written agreement ... provides that this subsection and subsection 56.1(2) shall apply to any amounts paid or payable thereunder, deemed to be an amount payable by the taxpayer to that person and receivable by that person as an allowance on a periodic basis and that person is deemed to have discretion as to the use of that amount.

[16]          Neither the 1995 order nor the 1999 order provided that subsections 60.1(2) and 56.1(2) would apply to amounts payable by the Appellant. Therefore, the factors which would satisfy the definition of "support amount", entitling him to a deduction under paragraph 60(b) do not exist.

[21]          It is indeed unfortunate for the Appellant, a man who steadfastly and continuously met his financial obligations to his family, not to have the deduction of amounts paid to the mortgage company. The rules are very strict and compliance must be made. It is even more unfortunate that he, in good faith, being prepared to honour his obligations, was required, because of his ex-spouse's failure to meet her obligations, to direct much of the amount thereof to maintain the home for his children. That is underscored and aggravated by the Family Maintenance Enforcement pursuit for what it regarded as unpaid maintenance.

[18]          While the 1999 Court Order declared that the Appellant had paid all maintenance[5] in accordance with the 1995 Court Order, it did not, as stated above, provide that subsections 60.1(2) and 56.1(2) would apply to amounts payable by the Appellant. Although subsection 60.1(3) provides relief in respect of payments if an Order provides that they are to be considered to have been paid, none of the Appellant's mortgage payments described in the 1999 Order qualified as a "support amount". Accordingly, he cannot succeed in this aspect of his appeal.

The Appellant will succeed in his 1997 appeal to the extent of being entitled to deduct the amount of $2,625 paid to Janis in that year.

Accordingly, his appeal for 1998 will be dismissed.

Signed at Toronto, Canada this 30th day of October, 2000.

"R.D. Bell"

J.T.C.C.

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