Date: 20020318
Docket: 2000-3807-IT-I
BETWEEN:
FRANCINE RIENDEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Tardif, J.T.C.C.
[1] This appeal concerns the 1997 taxation year.
[2] The issue is whether a monthly amount of $2,200 is taxable in the hands of the appellant as support or other allowance payable on a periodic basis.
[3] The facts assumed and alleged in the Reply to the Notice of Appeal (the "Reply") were admitted. The clauses of the agreement that are in dispute are the following:
[TRANSLATION]
(a) the respondent herself shall make the mortgage payments (including municipal and school taxes) directly for the residence at 755 De La Bolduc Crescent, in Ville Ste-Catherine, by direct deposit to the applicant's bank account with the Caisse Populaire de Kateri in Ville Ste-Catherine, the said deposits to be made on the 13th day of every month and in monthly amounts of approximately $800;
(b) the respondent shall also pay such things as the Hydro-Québec, Bell Canada and cable bills and the homeowner's insurance for the residence at 755 De La Bolduc Crescent in Ville Ste-Catherine;
(c) the respondent shall be responsible for current maintenance costs for the residence located at 755 De La Bolduc Crescent in Ville Ste-Catherine;
. . .
[4] The facts are not contested. The source of the dispute basically involves the interpretation or meaning to be given to the agreement between the parties, which was confirmed by the Superior Court in a judgment dated December 11, 1996.
[5] In arguing that a portion of the amount received from her former spouse should not be characterized as taxable support, the appellant relied on the following: Interpretation Bulletin IT-530 of January 11, 1999, a publication of the Minister of National Revenue (the "Minister") identified as P102(F) Rev. 96, a document headed 2000-0007667, May 04 2000, the decisions Renée Badeau v. The Queen, 2000 DTC 2300 (English version: [2000] T.C.J. No. 387 (Q.L.)), Antoine Assaf v. Her Majesty the Queen, [1992] T.C.J. No. 46 and The Queen v. Armstrong, 96 DTC 6315, and on the definition of the French word "devoir" in Le Nouveau Petit Robert.
[6] The appellant maintained that all amounts in respect of the commitments that she had to meet under the agreement using the lump sum amount received from her former spouse should be excluded from the support that was taxable in her hands. According to her, those were amounts over which she had no discretion, being required to pay them to third parties pursuant to very clear and well-defined instructions.
[7] For her part, the respondent maintained that the total amount was taxable because the agreement did not specifically and explicitly provide that the payments were to be made from the lump sum amount. The respondent argued, in other words, that, since the agreement had not specifically and explicitly provided that the payments were to be made from the amount identified as support, she retained the right to dispose as she saw fit of the entire amount received by her.
[8] According to the respondent, once received, the amount of $2,200 became a part of the appellant's patrimony; the payments to third parties were subsequently taken out of that patrimony and consequently she in fact did have discretion over the use of the amounts paid by her former spouse. In other words, the respondent would have liked the appellant to make note of the serial numbers on the bills received from her former spouse and to give the bills so identified directly to the third parties referred to in the agreement.
[9] This is obviously another case where the lawyers in the divorce proceedings cunningly arranged matters so that the support amounts would be deductible on the one hand and not taxable on the other hand.
[10] The tax impact is a significant factor in balancing the support needs of one spouse against the other spouse's ability to pay.
[11] Over the years, the Superior Court has developed extensive expertise in this area and has equipped itself with sophisticated tools for setting appropriate support amounts while at the same time taking the tax consequences into account.
[12] Despite the clarity of the statutory provisions relating to support, lawyers consciously or unconsciously draft support agreements so as to favour their respective clients with the obvious result that the agreements lack the desirable transparency and coherence.
[13] The strategy is often a very poor one as the effects are of no benefit to the spouses concerned. The Minister in fact quickly becomes aware of the scheme and takes another look at the file.
[14] The exercise frequently gives rise to a reassessment, thus forcing the support recipient to return to the Superior Court in order to make up for the shortfall arising from the reassessment.
[15] The Tax Court of Canada has no jurisdiction to interfere in the support amount determination process; essentially, it must decide whether the agreement meets and complies with the prescribed requirements for deductibility or taxability.
[16] Unfortunately, the effect of a decision of this Court is often to alter the parameters taken into consideration by the Superior Court, the only court having full jurisdiction to set, vary or cancel support.
[17] In the case at bar, the lawyers for the support payer no doubt wanted to give their approval to the agreement in the conviction that the amounts paid would be deductible. On the other hand, the appellant doubtless gave her assent to the agreement in the belief that a significant portion of the lump sum amount received by her would not be taxable.
[18] As a consequence, the parties to the agreement at the centre of this dispute will likely have to recommence the exercise in order to reach either a negotiated outcome or one imposed by the courts.
[19] At this time, I must determine whether the agreement meets the requirements for full taxability in the appellant's hands.
[20] The wording of the agreement is clear and unequivocal: from the lump sum amount received from her former spouse, the appellant was to take off specific or well-defined amounts to meet payment obligations toward third parties.
[21] To state the matter clearly, the appellant acted as an intermediary or agent for the support payer. The fact that a portion of the amount received by the appellant was to be used in a specific way in order to meet explicitly defined obligations meant that she had no discretion or latitude in respect of the enjoyment of that portion.
[22] Despite this clarity, the Minister apparently would have wanted the appellant to have acted as the bearer or deliverer of cheques made out by her former spouse to the order of the third-party creditors before he would admit that the appellant had no discretion over the amounts in question.
[23] My understanding of the wording used in the agreement is that the appellant had no discretion regarding the money for the payments for which she was made responsible under the agreement.
[24] With regard to the amount involved, there is no dispute; the amount of $13,130 admittedly reflected the total disbursed by the appellant to fulfil the obligations flowing from the agreement.
[25] The appeal from the assessment for the 1997 taxation year is allowed and the assessment is referred back to the Canada Customs and Revenue Agency for reconsideration on the basis that the amount of $13,130, which is part of an overall amount of $26,400 received by the appellant, should not be included in her income for the 1997 taxation year.
Signed at Ottawa, Canada, this 18th day of March 2002.
"Alain Tardif"
J.T.C.C.
Translation certified true on this 10th day of May 2002.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
2000-3807(IT)I
BETWEEN:
FRANCINE RIENDEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on September 6, 2001, at Montreal, Quebec, by
the Honourable Judge Alain Tardif
Appearances
Counsel for the Appellant: Martin Fortier
Counsel for the Respondent: Claude Lamoureux
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 1997 taxation year is allowed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 18th day of March 2002.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 10th day of May 2002.
Erich Klein, Revisor