[OFFICIAL ENGLISH TRANSLATION]
2000-2446(IT)I
BETWEEN:
MARIE ROY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on June 20, 2001, at Québec, Quebec, by
the Honourable Judge Alain Tardif
Appearances
For the Appellant: The Appellant herself
Counsel for the Respondent: Stéphane Arcelin
JUDGMENT
The appeal from the assessments made under the Income Tax Act for the 1996 and 1997 taxation years is allowed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 17th day of January 2002.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 24th day of April 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20020117
Docket: 2000-2446(IT)I
BETWEEN:
MARIE ROY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] This is an appeal for the 1996 and 1997 taxation years. The point for determination is whether payments totalling $9,766 for 1996 and $9,912 for 1997 were paid to the appellant by her former spouse on a periodic basis as alimony or other allowance payable on a periodic basis for the maintenance of the children of their marriage.
[2] After being sworn, the appellant admitted a number of the alleged facts assumed at the time of the determination. In particular, the facts admitted are as follows:
[TRANSLATION]
(a) from the application for "Order Varying Corollary Relief" filed in Superior Court on August 11, 1998, the following information was noted:
(i) the appellant and François Langlois (hereinafter the "former spouse") have been divorced since October 20, 1989, and the certificate of divorce was issued on November 20, 1989;
(ii) two children were born from that union: Annabelle on May 29, 1979, and Alexandre on October 17, 1987;
(iii) under the divorce decree, custody of the two children was awarded to the appellant and monthly support from the former spouse for his two children was fixed at $660, indexed in accordance with the act;
(iv) following the divorce decree, a number of judgments varying corollary relief were rendered, including one dated July 15, 1992, granting the former spouse custody of his minor daughter Annabelle;
(v) on April 20, 1993, a variation order was made providing that Annabelle would return to live with the appellant and that the support fixed at the time the divorce decree was made would once again be in effect;
(vi) subsequently, on December 30, 1993, an arbitration award was made recommending that support for the two minor children be fixed at $1,100 a month;
(vii) although the appellant filed an application for homologation of that arbitration award, on May 3, 1994, the Honourable Judge Jacques Philippon of the Superior Court refused to homologate it;
(b) in the "Variation Order" case heard on April 20, 1993, the Honourable Judge Jean Richard ratified an agreement between the parties and issued an interim order in accordance with the following terms:
(i) the parties agree to submit their dispute to an arbitrator;
(ii) the parties further agree to waive their right to dispute the arbitrator's report, which will be final and which must be homologated in order to be binding;
(iii) the divorce decree (respecting custody and support) is extended, the whole retroactive to February 1, 1993;
(c) the decisive reasons given by the Honourable Judge Philippon in his judgment for denying the application described in paragraph 9(a)(vii) above are as follows:
(i) the withdrawal of the right of appeal in an incidental arbitration process (arbitration by advocates);
(ii) the waiver of court transcripts stipulated in the arbitration mandate is inconsistent with the right of appeal; furthermore, acknowledgement that the arbitrator's decision is final is more suited to independent arbitration;
(iii) it must therefore be concluded that, in the absence of an essential attribute, there is no further reason to analyze the determination of questions that might be submitted for incidental arbitration;
(iv) the Court accordingly dismisses the application with costs;
(d) the amounts of $9,766 in 1996 and $9,912 in 1997 were paid to the appellant by her former spouse on a periodic basis as alimony or other allowance payable on a periodic basis for the support of the children of their marriage and the appellant was able to use those amounts at her discretion.
[3] The appellant filed a number of documents and copies of various pleadings, all prepared in the context of the divorce proceedings regarding her marriage to her spouse, François Langlois.
[4] The voluminous documentary evidence shows how difficult the appellant's relations with her former spouse were at the time of the divorce.
[5] The delays and numerous proceedings undoubtedly contributed to the Honourable Judge Jean Richard's recommendation to the appellant and her spouse that they resort to a more appropriate means of resolving their problem. He thus suggested that they seek mediation or arbitration, as appears from the following passage (Exhibit A-1):
[TRANSLATION]
Honourable Jean Richard, S.C.J.
. . .
EXCERPT FROM THE TRANSCRIPT OF THE HEARING OF APRIL 20, 1993
The Court:
But I would suggest to you, I could suggest to you a name, and . . . to whom you will go and agree to accept his decision as final.
. . . go get a decision that is final, that cannot be appealed, to the extent, obviously, that you trust Salomon.
It will be a certain Salomon, and that will . . . and, not within legal proceedings, not within the Court . . .
Gilles L'écuyer:
I think your suggestion is a very good one; that would enable me to withdraw from this case; I am not . . . doing my client a favour, and someone with experience, an experienced lawyer, as . . . you suggested, moreover; and that settled the matter - they resolved the problem.
The Court:
It was a poisonous problem . . .
Gilles L'écuyer:
. . . they each met with the mediator a couple of times, and the case was settled, because I have since spoken to both parties, Your Honour, and they told me: "It's settled; it's over."
The Court:
. . . inaudible . . .
Gilles L'écuyer:
For the defence:
We have . . . we have . . .
The Court:
. . . settled; I have never heard about it again . . .
. . . and I am obliged to withdraw from the case because they never even had the decision homologated, and . . .
The Court:
. . . Nearly final; that may be more economical than to go back to Court, and to return to Court, to lose work, to lose income, to pay fees if there's a lawyer on one side or the other, or if there are two lawyers.
In any case, I would try.
I would try if you think it is worth the trouble to try and have the matter decided by someone practical, in the know, who knows the profession, who knows the Court, who knows family law, who knows the law in general, . . .
. . .
The Court:
No, no, but I'm not suggesting that you start agreeing on a list of mediators.
I would recommend you someone and you could take the time to inquire - that's for certain - and, then, you would agree before me - and it would be entered in the record - to go to arbitration or mediation before that person - in fact, it is an arbitration - and you would waive your right to contest, to appeal - you have to have faith - you would waive your right to appeal from that decision.
. . .
And, personally, I'm convinced that that kind of work, in certain cases - I'm not saying this is the case here - is perhaps much more satisfying for the parties than a judgment, much more satisfying, less costly, less costly in time, energy, emotions, you know, in . . .
[6] The parties in fact gave Alain Turgeon an arbitration mandate on July 14, 1993. That mandate was followed by a very elaborate award signed by the arbitrator on December 30, 1993. The excerpt from the arbitration award concerning the issue of alimony is reproduced as follows (Exhibit A-1):
[TRANSLATION]
Arbitration Award
. . .
Lastly, with respect to the vacation item, Ms. Roy claims $4,500 annually, that is $375 a month. That amount is probably an ideal situation, but, in view of the circumstances, the parties are perhaps not in a position to assume such an ideal, and the vacation item is accordingly set at $2,000 a year for Ms. Roy and the children, having regard to the fact that if Mr. Langlois decides to take the children on vacation, he will have to be responsible for them. That amount accordingly represents a monthly expense of $166 for a net grand total of needs of $2,216 a month for that item.
Having regard to the evidence as a whole, the needs, the means, the new situation of the parties and, more particularly, that of Mr. Langlois; having regard to the fact that the children are entitled to a standard of living consistent with the means of the entire family unit; having regard to the fact that Ms. Roy is more present and is more involved in the maintenance and upbringing of the children than Mr. Langlois, the undersigned considers that net support of $1,300 a month must be paid by Mr. Langlois and Ms. Roy for the children until the end of Ms. Roy's sick leave, and $1,100 a month net of tax once Ms. Roy returns to her teaching duties on a full-time basis.
FOR THESE REASONS, THE UNDERSIGNED:
(A) DISMISSES the application for suspension of payment of support for August, September, October and November 1993;
(B) ARBITRATES AND DECLARES that the said support will be indexed starting on January 1, 1995;
(C) ORDERS Ms. Roy to provide the respondent with all information on the academic results and health of the children Annabelle and Alexandre.
(D) CERTIFIES OFFICIALLY the declaration of the parties that each of them will take charge of a minor child - Mr. Langlois, the minor child Annabelle and Ms. Roy, the minor child Alexandre.
(E) ACKNOWLEDGES the declaration of the parties that the said support is not taxable in the hands of Ms. Roy or deductible in the hands of Mr. Langlois;
(F) FIXES the support payable from February 1, 1993, to December 1, 1993, at $710.85 monthly;
(G) FIXES support at $1,300 net per month starting on December 1, 1993, for the duration of Ms. Roy's sick leave and at $1,100 net per month as soon as she returns to her teaching duties on a full-time basis;
(H) ORDERS Ms. Roy to keep Mr. Langlois informed, as need be;
(I) CERTIFIES OFFICIALLY the parties' judicial declaration that this decision shall be homologated by the Court;
(J) The parties will pay the costs in accordance with the mandate.
Québec, this 30th day of December 1993.
Alain Turgeon
[7] The appellant testified that she and her spouse had subsequently complied with the arbitration award to the letter with respect to support.
[8] Counsel for her former spouse moreover confirmed this assessment, the whole as appears from a letter dated January 21, 1994, which reads as follows (Exhibit A-1):
[TRANSLATION]
. . .
Francine Veilleux
. . .
SUBJECT: FRANÇOIS LANGLOIS
C. MARIE ROY
. . .
Our client has confirmed to us that he has paid in full the amounts established by Alain Turgeon in his arbitration award of December 23, 1993,* through bank transfers directly into his former spouse's account, and he furthermore informs us that he intends to continue complying with the said arbitration award voluntarily.
Out of principle, and for obvious reasons, we reiterate our request that you do not attempt to have this arbitration award homologated, as your client appears to wish, since there is no longer any dispute between our respective clients. This will prevent us from having to make our clients incur additional expenses and to have to raise the Court's authority or jurisdiction to receive such an application for homologation.
The client's interest in having that decision homologated is not present or real, and this effort of ours is made in the context of the agreement we have reached to cease pointless and vindictive proceedings.
We are therefore counting on your reviewing your client's position indicated in your letter dated January 21, 1994.
We hope to hear from you soon.
Sincerely yours,
Lawyers Vézina Pouliot,
. . .
[9] Not subscribing to the suggestion of her former spouse's counsel and wishing to obtain more formal guarantees, the appellant applied for judicial confirmation and homologation of the arbitration award's conclusions.
[10] Although the Court refused to confirm or homologate the said arbitration award for reasons not relevant to the instant case, the parties always complied faithfully with the conclusions until Annabelle's majority, after which her father deposited the amount directly in her bank account.
[11] Annabelle indeed admitted in her testimony that she had received the amount stated in the decision from the moment she reached her majority.
[12] The Minister of National Revenue (the "Minister") appears to claim that since the arbitration award was not homologated, the parties were governed in 1996 and 1997 by Judge Richard's interim order made on April 20, 1993. The Minister contends that the amounts paid to the appellant by her former spouse were paid as alimony or other allowance payable on a periodic basis for the maintenance of the children of the marriage, and the appellant had discretion as to the use of those amounts. The Minister contends that the amounts paid to the appellant by her former spouse were paid under the scheme of inclusion and deduction of alimony to a maximum of the amount provided for in the interim order made by the Honourable Judge Richard.
[TRANSLATION]
Interim Order
The divorce judgment (respecting custody and alimony) is extended, the whole retroactive to February 1, 1993. The Court allows a period of two months for repayment of arrears in addition to the appended alimony.
[13] The appellant contends that the scheme provided for in the Income Tax Act (the "Act") for the inclusion and deduction of amounts paid as alimony does not apply to the amounts that were paid to her by her former spouse on a periodic basis during the 1996 and 1997 taxation years.
[14] In the appellant's view, those amounts were not paid under a court order or written agreement. She contends that Judge Richard's interim order dated April 20, 1993, was not enforceable in 1996 and 1997 since it was an interim measure whose term was limited in time. The appellant contends that the amounts paid to her by her former spouse during those years were paid under an informal oral agreement to which the scheme of inclusion and deduction is not applicable.
[15] Since the application for homologation of the arbitration award dated December 30, 1993, was denied on May 3, 1994, that award was not binding. The appellant adds that the amounts that were paid to her in 1996 and 1997 were paid under the terms of that arbitration award on a consensual basis, but without there being a written agreement to that effect.
Analysis
[16] At the time the appellant received the amounts in issue in 1996, the applicable provisions of the Act read as follows:
56(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,
. . .
(b) Alimony - an amount received by the taxpayer in the year as alimony or other allowance payable on a periodic basis for the maintenance of the taxpayer, children of the taxpayer or both the taxpayer 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 who was required to make the payment at the time the payment was received and throughout the remainder of the year and the amount was received under a decree, order or judgment of a competent tribunal or under a written agreement;
(c) Maintenance - an amount received by the taxpayer in the year as an allowance payable on a periodic basis for the maintenance of the taxpayer, children of the taxpayer or both the taxpayer and the children if
(i) at the time the amount was received and throughout the remainder of the year the taxpayer was living separate and apart from the person who was required to make the payment,
(ii) the person who was required to make the payment is the natural parent of a child of the taxpayer, and
(iii) the amount was received under an order made by a competent tribunal in accordance with the laws of a province;
56(12) Definition of "allowance"
Subject to subsections 56.1(2) and 60.1(2), for the purposes of paragraphs (1)(b), (c) and (c.1) (in this subsection referred to as the "former paragraphs") and 60(b), (c) and (c.1) (in this subsection referred to as the "latter paragraphs"), "allowance" does not include any amount that is received by a person, referred to in the former paragraphs as "the taxpayer" and in the latter paragraphs as "the recipient", unless that person has discretion as to the use of the amount.
[17] In 1997, the provisions of the Act concerning the scheme of inclusion and deduction of alimony were amended. The provisions applicable to the amounts received in 1997 read as follows:
56. (1) Amounts to be included in income for year - Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,
(b) Support - 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 received after 1996 and before the end of the year by the taxpayer from a particular person where the taxpayer and the particular person were living separate and apart at the time the amount was received,
B is the total of all amounts each of which is a child support amount that became receivable by the taxpayer from 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 after its commencement day, and
C is the total of all amounts each of which is a support amount received after 1996 by the taxpayer from the particular person and included in the taxpayer's income for a preceding taxation year;
56.1 (4) Definitions - The definitions in this subsection apply in this section and section 56.
"commencement day" at any time of an agreement or order means
(a) where the agreement or order is made after April 1997, the day it is made; and
(b) where the agreement or order is made before May 1997, the day, if any, that is after April 1997 and is the earliest of
. . .
(ii) where the agreement or order is varied after April 1997 to change the child support amounts payable to the recipient, the day on which the first payment of the varied amount is required to be made, . . .
"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.
"child support amount" means any support amount that is not identified in the agreement or order under which it is receivable as being solely for the support of a recipient who is a spouse or former spouse of the payer or who is a parent of a child of whom the payer is a natural parent.
[18] For the scheme of inclusion and deduction of alimony to be applicable to the amounts received in 1996 and 1997, the following three conditions must have been met:
(1) the amounts must have been paid to the appellant by her former spouse under an order of a tribunal or under a written agreement;
(2) the amounts must have been payable on a periodic basis;
(3) the appellant had to have discretion as to the use of the amounts.
[19] The case essentially turns on the question whether the amounts in issue were paid under an order of a tribunal or under a written agreement.
Order of a Tribunal or Written Agreement
[20] For the inclusion and deduction of alimony to apply, the amounts must be received under an order of a tribunal or under a written agreement and the payments must be consistent with the obligation that imposed them. A payment is consistent with an order of a tribunal or with a written agreement if it is made in accordance with the legal obligation created in that order or agreement.[1]
[21] In Canada v. Sigglekow[2] (referred to by counsel for the Minister), the Court held that the amounts paid by a former spouse as alimony under an order of a tribunal or under a written agreement fell within the scheme of inclusion notwithstanding that those payments did not correspond to the amounts in the order or written agreement. However, the Court found that the scheme of inclusion and deduction applied to the amounts paid only up to the amounts provided for by the order or agreement under which they were paid.[3]
[22] The circumstances of the instant appeal may be distinguished from those in Sigglekow in that, in this appeal, the appellant is not submitting that the amounts she received in 1996 and 1997 do not fall within the inclusion/deduction scheme because they do not correspond to the amounts provided for in Judge Richard's interim order. Instead, the appellant's argument is that Judge Richard's order was not enforceable and consequently, that the amounts she received in 1996 and 1997 were not paid under that order.
[23] In Monette v. M.N.R.,[4] Judge Garon, as he then was, held that, for the scheme of inclusion and deduction of alimony to be applicable, it is not necessary that the amounts payable as an allowance be precisely determined in the order or agreement under which they are paid. In so concluding, Judge Garon wrote as follows at page 6:
I therefore conclude that a taxpayer may deduct an amount paid during the year in the circumstances set out in paragraph 60(b) even if the amount in question was not predetermined in the judgment or written agreement, as the case may be, provided that such amount may be determined subsequently or, in other words, is determinable.
[24] In the instant case, it must be determined whether the amounts paid to the appellant by her former spouse were paid under Judge Richard's interim order. That order was made in the context of the hearing of an application for an order varying accessory relief as a result of the divorce.[5] The judge before whom an application is filed in a family matter may "make any order required in the interest of justice".[6] The power to make an interim order at a hearing of such an application is provided for in article 22.1 of the Rules of Practice of the Superior Court of Québec in Family Matters ("R.P.S.C.Q.F.M."), which reads as follows:
22.1 If the Court is unable to hear immediately or to conclude the hearing of an application for accessory relief, or any variation thereof, and there is urgency, it may make an interim order on the strength of the affidavits, the documents filed and the representations of the parties.
[25] The primary object of Judge Richard's order was that the former spouses should appear before an arbitrator to resolve their differences, in particular with respect to the support that should be paid to the appellant. The honourable judge determined the support obligation for a specific and limited period of time. The former spouses agreed that the arbitration award would be final, and Judge Richard further ordered that it would be homologated by a competent tribunal.
[26] Judge Richard's order had a second component: the interim order fixing support for the appellant in the amount of $660 a month, which corresponded to the amount fixed in the divorce decree. In general, an interim order is rendered under article 22.1 of the R.P.S.C.Q.F.M. to meet the needs of the party that benefits from it until the application is heard on the merits. However, in the instant appeal, the interim order appears to be ancillary to the final judgment rendered by Judge Richard since it was delivered in order to provide for the needs of the appellant and the child until the arbitration award was rendered. Although this was not expressly stated, it may be inferred from the transcript of the hearing of the application that the interim order made by Judge Richard was a term order (as the appellant contends) and that the term was the arbitration award.
[27] Articles 382 to 394 of the Code of Civil Procedure of Québec (the "Code") provide for the right of the parties to a case to request to be referred to an arbitrator and request the applicable procedure:
382. The court may, at the request of the parties, refer a case to the decision of one or more arbitrators selected by them, who must be practising advocates or retired judges.
The demand for an arbitration must be signed by the parties themselves and must contain the names of the arbitrators, their consent to act and the amount of the remuneration that the parties undertake jointly and severally to pay to them.
. . .
385. The provisions of Sections III, IV, V and VI of Chapter I of Title V of Book Two, as to the summoning and examination of witnesses, the taking down of their evidence and the order of trial, apply to the trial before the arbitrators.
386. The arbitrators must make their award in writing, in the form of a judgment of the court; if they are not unanimous, those who dissent must give their reasons for so doing.
. . .
388. The award has no effect unless homologated by the court, on motion of one of the parties.
The court, seized of such motion, cannot inquire into the merits of the case, but only into the grounds of nullity which may affect the award. If it finds that any formality which has been omitted may be remedied without injustice to the parties, it may make such order as it considers necessary under the circumstances.
. . .
393. The award, when homologated, may be appealed like any judgment of the Superior Court.
394. The provisions of this chapter do not apply when the parties do not have the power to transact or when some matter of public interest is involved; nor do they apply to applications relating to filiation or to deprivation or restoration of parental authority, to applications for separation as to bed and board, in nullity of marriage or for divorce, for dissolution of corporations or to annul letters patent.
[28] According to Judge Richard, once the arbitration award has been made, homologation would be a mere formality necessary to render the arbitrator's report binding. Article 388 of the Code provides that the arbitration award "has no effect unless homologated by the Court, on motion of one of the parties". The interim order ceased to be binding the moment the arbitration award was made; consequently, the amounts paid to the appellant cannot fall within the scheme of inclusion and deduction of alimony on the basis of that interim order.
[29] Even though the arbitration award was not homologated, the parties voluntarily and verbally complied with its terms. The appellant must take action against her former spouse in case of non-payment and cannot simply take the enforcement action available where a judgment or court order has been infringed.
[30] It is indisputable that the amounts paid to the appellant by her former spouse during 1996 and 1997 were paid in accordance with the arbitration award. That is apparent from the letter from the former spouse's lawyer dated January 21, 1994, in which he states that his client [TRANSLATION] "intends to continue complying with the said arbitration award voluntarily".
[31] In addition, the amounts paid correspond to those provided for in the arbitration award.
[32] In Dlagacz v. M.N.R.,[7] the taxpayer required to make alimony payments to his former spouse under a divorce decree voluntarily paid amounts greater than those provided for in the judgment. Judge Cardin concluded at the time that the taxpayer could deduct from his income the amounts of alimony paid up to the amount provided for in the divorce decree. The additional amounts paid on a voluntary basis were not deductible since there had been no written agreement to that effect. Judge Cardin also held that there was no evidence that the terms of the divorce decree had been changed.
[33] In the instant case, an order was made on the application for variation of corollary relief, under which the former spouses agreed to settle their dispute before an arbitrator and to comply with that arbitrator's decision. I believe that this order affected the divorce judgment with respect to corollary relief. The interim order was ancillary to Judge Richard's order, which was to terminate when the arbitration award was made.
[34] The two parties agreed in advance to be bound by the arbitrator's final award. They subsequently submitted to it and complied with its content, notwithstanding the fact that it had not been homologated.
[35] In Dlagacz, supra, a written agreement would have been acceptable to amend the divorce decree for tax purposes without the need for a judgment to that effect.
[36] In the instant appeal, I find that the arbitration award had the effect of terminating Judge Richard's interim order; it is entirely normal and legitimate for parties bound by a support order to agree to amend its content without failing to meet their obligations arising therefrom.
[37] Since it was not homologated, the award did not have the necessary characteristics to fall under the provisions of the taxing statute; it moreover was not binding.
[38] Undoubtedly an undeniable fact in the context of a civil proceeding, the award in question did not meet the requirements for constituting a reference in the application of the provisions of the Act. Consequently, the amounts paid and received were not subject to the statutory provisions respecting inclusion and deduction.
[39] The appeal is therefore allowed.
Signed at Ottawa, Canada, this 17th day of January 2002.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 24th day of April 2003.
Sophie Debbané, Revisor
* Underlined: the arbitration award is dated December 30, 1993.
[1] The Queen v. Barbara D. Sills, [1985] 2 F.C. 200, 85 D.T.C. 5096 (F.C.A.).
[2] Canada v. Sigglekow, [1985] F.C.J. No. 902, [1985] 2 C.T.C. 251 (F.C.T.D.).
[3] Ibid.
[5] Presentable under paragraph 2(1)(a.5) of the Divorce Act, R.S.C. (1985), c. 3 (2nd Supp.).
[6] Article 14 of the R.P.S.C.Q.F.M.
[7] 84 D.T.C. 1549 (T.C.C.).