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Docket: 2003-704(IT)I |
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BETWEEN: |
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PETER HOCK, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
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Appeal heard on July 22, 2003 at Nanaimo, British Columbia
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Before: The Honourable D.W. Rowe, Deputy Judge |
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Appearances: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
Raj Grewal |
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JUDGMENT
The appeal from the assessment made under Income Tax Act for the 2000 taxation year is dismissed in accordance with the attached Reasons for Judgment.
Signed at Sidney, British Columbia, this 25th day of September 2003.
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"D.W. Rowe" |
Rowe, D.J.
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Citation:2003TCC691 |
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Date: 20030925 |
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Docket: 2003-704(IT)I |
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BETWEEN: |
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PETER HOCK, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
REASONS FOR JUDGMENT
Rowe, D.J.
[1] The appellant appealed from an assessment of income tax with respect to his 2000 taxation year. The Minister of National Revenue (the "Minister") disallowed the appellant's claim for $12,206 spousal support on the basis that a purported agreement between the appellant and his spouse did not indicate what amounts the appellant was required to pay nor to whom the third party and specific purpose payments were to be made. As a consequence, the Minister took the position the requirements of subsections 60.(1) and (2) of the Income Tax Act (the "Act") had not been met and the appellant was not entitled to the deduction, as claimed.
[2] The appellant - Hock - testified he is a Corrections Officer employed by the Province of British Columbia in Nanaimo. He and Rebecca Hock are married and are the parents of two children, a girl born on February 6, 1982 and a boy born on April 23, 1984. The appellant and his wife had separated in 1995 and continued to live separate and apart throughout the 2000 taxation year. Pursuant to an Order of the Provincial Court of British Columbia - registered on December 23, 1999 - the appellant was required to pay the sum of $578 per month - commencing January 1, 2000 - for the support of his two children. During 2000, the appellant paid the sum of $6,946 to Rebecca Hock pursuant to said Order but the commencement date of the Order precluded deductibility of payments on the part of the appellant. The appellant stated he and Rebecca Hock entered into an agreement - Exhibit A-1 - dated December 20, 1999, whereby he agreed to pay additional payments " for the support of the existing eligible children" in the form of both "Specific-Purpose Payments and Periodic Payments". The relevant final portion of their agreement stated: "The payer, Peter Hock ... will deduct these amounts under subsection 60.1(2) of the Income Tax Act". In a preceding clause, Rebecca Hock agreed she would include the payments as income under subsection 56.1(2) of the Act.Also, in said agreement, the appellant and his wife agreed they would continue to abide by the Order issued - upon consent of both parties - and then registered on December 23, 1999. Hock testified that his wife had lost her job - in 1999 - and issues arose concerning their former matrimonial home, the title to which was held in their joint names. He stated he had never pursued a divorce due to the implications of dividing their joint equity in that residential property. In 1999, Hock had made certain payments to third parties and at the end of that year it had become apparent his wife would require additional financial support during 2000 as a consequence of having lost her employment. Earlier, Hock and his wife had both contributed to the mortgage payments on their jointly-owned residence since they had earned more or less the same annual wage. The appellant stated he was required to make payments to BC Hydro in relation to a Power Smart program and he prepared a sheet - Exhibit A-2 - on which he listed this obligation together with other payments made by him - during 2000 - to several third parties. In his view, all of these payments were made pursuant to the written agreement - Exhibit A-1 - that he had entered into with his wife on December 20, 1999. Hock stated he and his wife had a joint bank account which he never used except to deposit funds for her use. However, since the monthly mortgage payment on their jointly-owned residence was taken from that account, there was rarely any excess accumulated therein. The remaining payments by Hock during 2000 were made from his own separate bank account and the telephone and hydro bills were still issued in his name. He also paid for car insurance in respect of a vehicle registered in the name of Rebecca Hock. The appellant explained that he and his wife had decided to participate in the Power Smart program - offered to consumers by BC Hydro - pursuant to which homeowners could upgrade their homes in order to make them more energy efficient. Hock and his wife installed vinyl windows, steel doors, insulation and generally improved the energy efficiency of the house. The payment schedule to retire the cost of this upgrading work was based on equal annual payments in the sum of $2,436.07 spread over 5 years, calculated monthly and included within the regular equalized monthly bill - in the sum of $369.79 - issued by BC Hydro for power consumption. A total sum of $1,917.62 - charged to the appellant's Mastercard - was considered by him to have been for the benefit of his children although he conceded it is sometimes difficult to determine the true beneficiary if - for example - birthday gifts or other presents were purchased by his wife for the children and presented to them. Hock stated he continued to make third party payments in 2001, 2002 and currently abides by the same practice. Hock's wife and children lived in the jointly-owned residence - in Campbell River, B.C. - and in recent years the value has declined by approximately $30,000 to a present value of $124,000. Hock stated that, prior to entering into the written agreement with his wife, he had obtained a pamphlet entitled Support Payments - Exhibit A-3 - from the local office of Canada Customs and Revenue Agency - CCRA - and considered that he and his wife had abided by the terms of their agreement in that she had reported - as income in her 2000 income tax return - the identical amount he had claimed as a deduction in the form of spousal support. Specifically, he relied on the contents of page 29 of said pamphlet wherein certain payments were referred to as being eligible for deduction on the part of the payer. In 2000, Hock's gross salary was $41,000 and payments to his spouse - or to third parties - for the benefit of his children amounted to $19,152. Within the context of a net salary of approximately $26,000 per year, Hock stated there was very little to live on considering he had no other sources of revenue. The appellant stated that prior to entering into the agreement with his wife, he was aware he would be called upon to make certain payments - during 2000 - in order to maintain the residence and lifestyle of his wife and children but he had realized that many of these financial demands were not predictable. During a telephone conversation with an Appeals Officer at CCRA, Hock stated he was advised that if he had only inserted a minimum monthly amount into the written agreement, his payments - during 2000 - would have been deductible. The appellant stated he was aware his wife had health issues and considered he was bound by their marriage status to assist her through a period of trouble. At the time of entering into said agreement, Hock stated he thought he may have been operating within a "grey area" but had not wanted to bind himself to an obligation to make mortgage payments on the house because he was not certain of the ramifications - if any - of taking a deduction on that basis and still retaining the tax-free status with respect to his share of funds flowing from the eventual sale of the former matrimonial home.
[3] In cross-examination by counsel for the respondent, the appellant stated he deposited - in 2000 - the sum of $3,900 into the joint account for the purpose of paying the mortgage of their former matrimonial home which remained the residence of his wife and two children.
[4] The appellant conceded he was not certain of the tax implications arising from the mortgage payments and other expenditures made by himself within the context of the agreement entered into between himself and his wife but considered them to have been for the benefit of his children. Further, Rebecca Hock had claimed the sum of $12,206 as income and the appellant submitted he should be entitled to the corresponding deduction.
[5] Counsel for the respondent submitted the agreement - Exhibit A-1 - was merely the expression of a future intention on the part of the appellant and was not a legally binding agreement. Counsel categorized the document as nothing more than an agreement between the parties purporting to determine the manner of reporting payments - if made - by the appellant.
[6] The issue is whether the appellant is entitled to deduct the sum of $12,206 as additional support payments made to or on behalf of his wife for the benefit of their children.
[7] The relevant legislation is contained in subsections 60.1(1) and (2) of the Act and reads:
SECTION 60.1: Support.
(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.
(2) AGREEMENT. For the purpose of section 60, this section and subsection 118(5), the amount determined by the formula
A - B
where
A is the total of all amounts each of which is an amount (other than an amount that is otherwise a support amount) that became payable by a taxpayer in a taxation year, under an order of a competent tribunal or under a written agreement, in respect of an expense (other than an expenditure in respect of a self-contained domestic establishment in which the taxpayer resides or an expenditure for the acquisition of tangible property that is not an expenditure on account of a medical or education expense or in respect of the acquisition, improvement or maintenance of a self-contained domestic establishment in which the person described in paragraph (a) or (b) resides) incurred in the year or the preceding taxation year for the maintenance of a person, children in the person's custody or both the person and those children, where the person is
(a) the taxpayer's spouse or common-law partner or former spouse or common-law partner, or
(b) where the amount became payable under an order made by a competent tribunal in accordance with the laws of a province, an individual who is a parent of a child of whom the taxpayer is a natural parent,
and
B is the amount, if any, by which
(a) the total of all amounts each of which is an amount included in the total determined for A in respect of the acquisition or improvement of a self-contained domestic establishment in which that person resides, including any payment of principal or interest in respect of a loan made or indebtedness incurred to finance, in any manner whatever, such acquisition or improvement
exceeds
(b) the total of all amounts each of which is an amount equal to 1/5 of the original principal amount of a loan or indebtedness described in paragraph (a),
is, where the order or written agreement, as the case may be, provides that this subsection and subsection 56.1(2) shall apply to any amount 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.
[8] The basic requirements for deductibility on the part of the appellant in the circumstances of the within appeal are:
a) the parties were living separate and apart when the payments were made;
b) the support amount is an amount payable or receivable as an allowance on a periodic basis;
c) the payments to the recipient must have been for the benefit of the children;
d) the payments were made to Rebecca Hock or were otherwise within the category of a specific-purpose payment or a third-party payment.
[9] There is no doubt that the appellant and his wife were living separate and apart during 2000. However, the only true periodic payments made by the appellant were those issued pursuant to the Order dated December 23, 1999 and the deductibility of those amounts are not in issue because they commenced on January 1, 2000 and are ineligible due to 1997 amendments to the Act. As stated by the appellant in his testimony, he had some doubts about the effect of deducting mortgage payments on their jointly-owned home in that he was concerned that course of action might have some undesirable downstream effect when the time came to sell the property that had been their former matrimonial home and - following their marital breakup - had continued to be the residence of his wife and children. A close reading of the agreement - Exhibit A-1 - does not reveal any binding obligation on the part of the appellant as payer. There is no consideration flowing from Rebecca Hock in that she did not forego any right to legal action - actual or contemplated - in return for obtaining his promise to make certain payments on a periodic basis or for any future specific purpose. The clause concerning the additional payments read as follows:
Additional payments will be in the form of both Specific-Purpose Payments and Periodic Payments. These additional payments will all be Third Party Payments. All of these payments are for the benefit of the recipient.
[10] In my view, the language utilized is contemplative because - as the appellant stated in his testimony - he was not certain of the exact nature and extent of the financial demands about to be thrust upon him - in 2000 - due to the changed circumstances flowing from the loss of his wife's employment and the ability to earn an annual salary equal to his own. In that sense, the appellant chose not to bind himself specifically to any particular payment schedule and wanted to maintain a certain amount of control over the manner in which any payments would be made. The mortgage payment on the residence was withdrawn from a joint account in the name of the appellant and his wife and - generally - he ensured that only funds sufficient for the purpose of said payment were deposited into that account.
[11] In the case of Hoult v. R., [2000] 2 C.T.C. 2756, Margeson, T.C.J. dealt with the issue whether certain payments made by the taxpayer were "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 the children of the recipient". Judge Margeson concluded that a certain amount paid as medical insurance payments constituted support amounts and was deductible under subsection 60(b) of the Act. However, an additional amount of $460 was held not to be deductible for reasons stated at paragraph 28 of the reasons for judgment:
With respect to the additional medical payments of $460.00 the Court has no difficulty in deciding that those amounts are not deductible under the provisions in question here. They were clearly not amounts which were made pursuant to the agreement on a periodic basis. Indeed, according to the evidence these amounts were not even ascertainable at the time the agreement was made and they were not made periodically. It is no answer to this argument to say that the payments were made on an ongoing basis. The Court is satisfied that these payments were not made periodically and on that basis alone the appeal in that respect is dismissed and the Minister's assessment is confirmed.
[12] In Skertchly v. R., [2000] 4 C.T.C. 2089, Rip, T.C.J. considered the appeal of a taxpayer who had come to the assistance of his wife who had encountered certain financial difficulties. On the advice of his solicitor, the taxpayer had made three monthly payments to his wife - each in the sum of $3,056 - but under the terms of a separation agreement entered into on June 6, 1995, there was no provision compelling him to make periodic payments to his wife and the only discussion of payments was within the context of a lump sum payment as one of the terms of a settlement by which the taxpayer would obtain title to the family residence.
[13] In Milliron v. Canada, [2003] F.C.J. No. 1004, 2003 FCA 283, the Federal Court of Appeal dealt with a judicial review of a judgment dismissing an appeal from an assessment wherein the Minister denied the claim of the taxpayer to deduct certain child support payments made pursuant to a second document, separate and apart from an original separation agreement. The judgment of the Court was delivered by Sharlow, J.A. and is reproduced below:
This is an application for judicial review of a Tax Court judgment dated May 15, 2002 dismissing Mr. Milliron's income tax appeal relating to 1998 and 1999: Milliron v. Canada, [2002] T.C.J. No. 252 (QL). The issue before this Court is whether the Tax Court Judge was correct when he concluded that Mr. Milliron is not entitled to deduct child support payments made in those years.
In February of 1997, Mr. Milliron and Ms. Jones, who was then his spouse, entered into a separation agreement under which he was obliged to pay Ms. Jones child support in a stipulated amount for their two children:
...UNTIL THE WIFE is employed in a single, full-time job, or until December, 1997, whichever comes first. AT THAT TIME, these maintenance and support monies will be renegotiated to a lesser amount.
In December of 1997, Mr. Milliron and Ms. Jones executed a second document that reduced the child support payments by one-half. The opening clause of that document reads as follows:
By mutual consent ... Spousal Support and Child Support payments have been altered. Beginning on November 15, 1997 the following changes were mutually agreed upon: ...
There follows a list of changes, including two clauses that reduce the child support payments by one-half.
There is no dispute as to the meaning of the provisions of the Income Tax Act that are relevant to this case. They may be summarized as follows. Until 1997, child support payments made pursuant to a court order or written agreement were deductible by the paying parent, provided certain conditions were met. The Income Tax Act was amended in 1997 so that child support payments are not deductible if they are made pursuant to an agreement or court order made after April 1997, or if they are made pursuant to an agreement or court order made in or before April 1997 that is varied after April 1997 to change the amount of child support.
It was the position of the Crown that the child support payments Mr. Milliron made in 1998 and 1999 were made pursuant to the December 1997 document, and are not deductible because the December 1997 document is either a new agreement or a variation of the February 1997 agreement.
Mr. Milliron argued in the Tax Court, and also in this Court, that the child support payments were made pursuant to the February 1997 agreement, and that the December 1997 document was not a new agreement or a variation of the February 1997 agreement, but a document that merely recognizes or acknowledges a 50% reduction in child support that was agreed to in February 1997, and is implicit in the February 1997 agreement. In that regard, Mr. Milliron relies upon the renegotiation clause referred to above.
The Tax Court Judge rejected Mr. Milliron's argument and accepted the argument of the Crown. We are all of the view that he was correct to do so. The flaw in Mr. Milliron's argument is that the renegotiation clause in the February 1997 agreement does not stipulate any amounts. It is at most an agreement to renegotiate. Even if Mr. Milliron and Ms. Jones intended in February of 1997 that child support would be reduced by one-half in December of 1997, it was not until December of 1997 that the parties made a written agreement giving effect to that intention.
Mr. Milliron also argued that he was induced by Revenue Canada officials to claim the deductions as he did, and that he should be entitled to some relief for "officially induced error". The Tax Court has no jurisdiction to give a remedy for incorrect advice. The jurisdiction of the Tax Court in an income tax appeal is limited to determining whether the assessment under appeal is correct, based on the facts and the relevant law. Therefore, the Tax Court Judge was correct to disregard Mr. Milliron's request for relief on that ground.
For these reasons, this application for judicial review will be dismissed.
[14] Returning to the within appeal, it is apparent the so-called agreement - Exhibit A-1 - did not compel the appellant to make any additional payments for any particular purpose on any basis, periodic or otherwise. Instead, it was an expression of good will on his part and it should be noted that he contributed a huge proportion of his net pay to support his children and - indirectly - his wife. In my view, had the agreement been worded properly by setting out the amount and nature of the payments to BC Hydro with respect to not only the monthly consumption bills but also the repayment of the cost of the energy renovation loan, the appellant would have been entitled to the deductibility sought. Similarly, the mechanism for the monthly payment of the mortgage could have been set forth in an agreement so as to make it clear that it was clearly a support payment within the provisions of the Act. By agreement, parties cannot bind the Minister to assessing a named person in a specific manner in respect of monies paid and received if the intended result is not supported by relevant provisions of the Act.
[15] Even if I had been able to conclude that the document - Exhibit A-1 - constituted a binding agreement and that it had " provided " for the payment of an amount for the benefit of the appellant's children, there were certain amounts paid - as listed on the schedule - Exhibit A-2 - that I would not have allowed as a deduction. The payments to Petro Canada - for charges incurred on a gasoline credit card - and those payments to Mastercard and Canadian Tire on credit cards are too remote and were not linked in evidence to a benefit conferred on the children as opposed to merely assisting his wife for her own purposes by providing her with funds in order that she could continue to operate a motor vehicle.
[16] It is unfortunate the appellant did not seek competent advice to allay his misgivings about any subsequent tax implications possibly arising out of his decision to make mortgage and other payments related to their former matrimonial home. Had he done so, his good-hearted and consistent support of his children in the form of periodic, specific payments would have been eligible for deductibility in accordance with the provisions of the Act. The whole point of specific-purpose payments is that they must be for a specific purpose even if the amount is not known at the time the commitment is made and the expenditure is of the sort generally regarded as a one-time payment.
[17] The jurisdiction of this Court is to determine whether the assessment issued by the Minister is a valid assessment. Having regard to the evidence and taking into account the relevant jurisprudence, I conclude the assessment is proper. The appeal is hereby dismissed.
Signed at Sidney, British Columbia, this 25th day of September 2003.
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"D.W. Rowe" |
Rowe, D.J.
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CITATION: |
2003TCC691 |
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COURT FILE NO.: |
2003-704(IT)I |
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STYLE OF CAUSE: |
Peter Hock & Her Majesty the Queen |
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PLACE OF HEARING: |
Nanaimo, British Columbia |
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DATE OF HEARING: |
July 22, 2003 |
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REASONS FOR JUDGMENT BY: |
The Honourable D.W. Rowe, Deputy Judge |
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DATE OF JUDGMENT: |
September 25, 2003 |
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APPEARANCES: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
Raj Grewal |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
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Firm: |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |