[OFFICIAL ENGLISH TRANSLATION]
98-949(IT)I
BETWEEN:
LUC P. LANCE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on January 27, 2000, at Ottawa, Ontario, by
the Honourable Judge Lucie Lamarre
Appearances
Counsel for the Appellant: Serge Laurin
Counsel for the Respondent: Jade Boucher
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1995 and 1996 taxation years are dismissed.
Signed at Ottawa, Canada, this 15th day of March 2000.
|
"Lucie Lamarre" |
J.T.C.C.
Translation certified true
on this 24th day of October 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20000315
Docket: 98-949(IT)I
BETWEEN:
LUC P. LANCE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre, J.T.C.C.
[1] These are appeals under the informal procedure from assessments made by the Minister of National Revenue ("Minister") under the Income Tax Act ("Act") for the 1995 and 1996 taxation years. In computing his income for each of those years, the appellant deducted amounts of $5,500 and of $14,389.44 respectively, as alimony paid.
[2] The Minister allowed a deduction for $4,800 in alimony for each of the years at issue, at the same time refusing deductions in the amount of $700 for 1995 and of $9,589.44 for 1996.
[3] In making the assessments, the Minister relied on the following facts stated in paragraph 6 of the Reply to the Notice of Appeal:
[TRANSLATION]
(a) in the judgment of divorce dated October 14, 1994, the appellant was subject to a number of requirements, including the following:
(i) to pay Loretta Anderson (hereinafter the "former spouse") alimentary allowance of $400 per month for the children of the marriage;
(ii) to pay the mortgage, property tax and house insurance for the family home, an amount of approximately $799.12 per month;
(iii) in the event the appellant were to fail to pay the mortgage, property tax and house insurance, to pay the former spouse $799.12 per month, the amount she would have to pay for those same expenses;
(b) the disallowed deduction for the alimentary allowance, that is, the amounts of $700 for 1995 and of $9,589.44 for 1996, covers the cost of the mortgage, property tax and house insurance for the family home where the former spouse and the children reside;
(c) the former spouse has no discretion with respect to the use of the amounts paid by the appellant for the mortgage, property tax and house insurance;
(d) the amounts paid by the appellant for the mortgage, property tax and house insurance were not paid directly to the former spouse;
(e) in the judgment of divorce between the appellant and the former spouse, there is no indication that subsections 56.1(2) and 60.1(2) of the Income Tax Act (the "Act") apply to the amounts owing for the mortgage, property tax and house insurance or that those amounts are deemed to be paid to the former spouse and received by her as periodic payments.
[4] With the agreement of counsel for the respondent, counsel for the appellant adduced in evidence the judgment of divorce giving effect to the divorce agreement entered into by the appellant and his former spouse. The evidence in question was filed as Exhibit A-1.
[5] The terms of that agreement set out in the judgment of divorce include the following:
JUDGMENT OF DIVORCE
. . .
THE COURT RENDERS a judgment of divorce between the parties whose marriage was solemnized on the 1st of June 1984 at Elliot Lake, Province of Ontario, to take effect on the thirty-first day after the date of the present judgment;
RATIFIES the agreement entered into by the parties and filed into the Court record, dated September 15th 1994, which document forms integral part of this judgment, including all renunciations, DECLARES it to be executory, ENJOINS the parties to abide therewith and, more particularly:
. . .
ORDERS Defendant to pay to Applicant, for the said children, an alimentary allowance of $400.00 per month, payable in advance the first day of every month;
The father will pay, as supplementary child support, the mortgage payment and the taxes of the property described in paragraphe (sic) 14 of the agreement, and the house insurance; that represents currently an amount of approximately $799.12 per month;
In default by the father to undertake either one of the payments mentioned in the preceeding paragraph, he will pay to the mother, as supplementary support for the children the sum of $799.12 per month, such sum being used by the mother for the payment of the expenses mentioned in the proceeding (sic) paragraph;
. . .
GIVES to the Applicant a formal right of use and habitation of the principal family residence.
[6] The only point at issue consists in determining whether the amounts paid by the appellant to cover the mortgage, property tax and house insurance on the family home, which are assessed at $799.12 per month in the agreement and the judgment of divorce, are deductible in the computation of the appellant's income for the years 1995 and 1996.
[7] The respondent was of the view that the appellant could not deduct those amounts since they do not represent alimony or any other allowance within the meaning of paragraph 60(b) and subsection 56(12) of the Act. She further argued that those amounts are not deemed to have been paid by the appellant to his former spouse as an allowance payable on a periodic basis within the meaning of subsection 60.1(2) since the judgment of divorce makes no mention of this.
[8] Counsel for the appellant did not seem to be contesting the fact that this is not alimony within the meaning of the Act since the appellant and his former spouse were no longer married during the years at issue (see Langstaff v. The Queen, [1996] TCJ No. 1266 (Q.L.)). He argued that the amounts at issue are deductible simply on the basis of subsection 60.1(1) and paragraph 60(b) of the Act. In his view, the wording of those two provisions overrules the application of subsections 56(12) and 60.1(2) of the Act. He further argued that those amounts constitute an allowance payable on a periodic basis within the meaning of subsections 56(12) and 60.1(2) since the terms of the judgment of divorce refer to amounts paid "as supplementary child support". In his view, there is no need to refer specifically to subsections 56.1(2) and 60.1(2) for those amounts to be deductible so long as the terms of the judgment are sufficiently clear to establish that this is an allowance payable on a periodic basis.
Analysis
[9] During the years in issue, the relevant sections of the Act read as follows:
SECTION 56: Amounts to be included in income for year.
(56(12))
(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.
SECTION 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:
(60(b))
(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(c))
(c) Maintenance - an amount paid by the taxpayer in the year as an allowance payable on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and the children, if
(i) at the time the amount was paid and throughout the remainder of the year the taxpayer was living separate and apart from the recipient,
(ii) the taxpayer is the natural parent of a child of the recipient, and
(iii) the amount was received under an order made by a competent tribunal in accordance with the laws of a province;
SECTION 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.
(60.1(2))
(2) Agreement. For the purposes of paragraphs 60(b) and (c), 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 to which paragraph 60(b) or (c) otherwise applies) paid by a taxpayer in a taxation year, under a decree, order or judgment 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 maintenance of a person who is
(a) the taxpayer's spouse or former spouse, or
(b) 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 for the maintenance of children in the person's custody or both the person and those children if, at the time the expense was incurred and throughout the remainder of the year, the taxpayer was living separate and apart form that person, 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),
shall, where the decree, order, judgment or written agreement, as the case may be, provides that this subsection and subsection 56.1(2) shall apply to any payment made thereunder, be deemed to be an amount paid by the taxpayer and received by that person as an allowance payable on a periodic basis.
[10] Paragraph 60(b) provides for the deduction of amounts paid as alimony to the former spouse. The instant case involves amounts paid by the appellant to third parties. Under subsection 60.1(1), if the judgment of divorce provides for payment on a periodic basis of an amount by a taxpayer for the benefit of his former spouse or of children in her custody, the amount shall be deemed for the purposes of paragraphs 60(b) and (c) to have been paid to and received by the former spouse.
[11] According to counsel for the appellant, such is clearly the case here since the judgment of divorce requires that the appellant pay the mortgage, property tax and house insurance in specific periodic amounts for the benefit of his former spouse and his children who have use of the family home.
[12] According to counsel for the appellant, subsection 60.1(1) makes no reference to subsection 56(12) and it is therefore not necessary to prove that the former spouse could use the amounts in question at her discretion for them to qualify as an allowance. He held that it was not logical to apply subsections 60.1(1) and 56(12) concurrently since subsection 60.1(1) deals specifically with payments to third parties for the benefit of the former spouse or children in her custody and that the payments could obviously not be used at the former spouse's discretion. According to counsel for the appellant, given that subsection 60.1(1) applies, it is no longer necessary to meet the conditions of subsection 56(12). He relied on the decision of the Federal Court Trial Division in The Queen v. Bryce, [1981] 1 F.C. 587, reversed by the Federal Court of Appeal but restored, according to him, by the Supreme Court of Canada in a judgment given on consent. Counsel for the appellant also relied on the rulings of this court in Crewe v. The Queen, [1992] TCJ No. 547 (Q.L.) and in Langstaff, cited earlier.
[13] The Federal Court of Appeal had the opportunity to examine that particular point in The Queen v. Armstrong, [1996] FCJ No. 599 (Q.L.). Stone J.A. writes as follows at pages 7 to 9:
[13] I agree that the construction of subsection 60.1(1) is not without some difficulty. At the same time, with respect, I do not see how the decision of the Trial Division in Bryce can be described as being beyond "attack", as the Tax Court Judge suggests, when it was reversed by this Court on appeal. True, the Supreme Court of Canada upon a motion in chambers in turn reversed this Court's judgment but as its judgment was given on consent it has no precedential value. A consent judgment represents an agreement of the parties and although it is entered upon the record with the approval of a court and is therefore binding as between the parties it does not create a precedent by which an inferior court is bound. [See Note 3 below] It seems obvious, moreover, that no argument was addressed to the Supreme Court in Bryce on the issue which was disposed of by this Court.
_______________
Note 3: See Prince et al. v. Frost-Johnson Lumber Co. et al., 250 S.W. 785 (Tx. Ct. of Civ. App.), at p. 789. See also Belcher et al. v. Cobb et al., 86 S.E. 600 (S.C.N.C.), at p. 602; Cason v. Shute et al., 189 S.E. 495 (S.C.N.C.), at pp. 495-496.
[14] Subsection 60.1(1) does not by express language incorporate the definition of "allowance" in subsection 56(12). It does, however, restrict its own application to the periodic payment of an amount by a taxpayer provided for in a "decree, order, judgment or written agreement described in paragraphs 60(b), (c) or (c.1), or any variation thereof", made after May 6, 1974. In my view, the relevant descriptions are found in the following language of the respective paragraphs:
60.(b)....a decree, order or judgment of a competent tribunal or pursuant to a written agreement, as alimony or other allowance payable on a periodic basis for the maintenance of the recipient thereof, children of the marriage, or both the recipient and children of the marriage....
60(c)...an order of a competent tribunal, as an allowance payable on a periodic basis for the maintenance of the recipient thereof, children of the recipient, or both the recipient and children of the recipient...
60(c.1)...an order made by a competent tribunal in accordance with the laws of a province, as an allowance payable on a periodic basis for the maintenance of the recipient thereof, children of the recipient, or both the recipient and the children of the recipient... (emphasis added)
It seems to me that one must read the qualifying words "as alimony or other allowance" or "as an allowance" in their particular context within those paragraphs for the full descriptions of "decree, order, judgment or written agreement" referred to in subsection 60.1(1). Otherwise any decree, order, judgment or written agreement would theoretically fall within the descriptions.
[15] It is to be observed that this descriptive language is absent from subsection 60.1(1). Furthermore, the definition of "allowance" contained in subsection 56(12) was adopted, inter alia, expressly "for the purposes of paragraph...60(b), (c) and (c.1)". Subsection 60.1(1) does not itself provide for the deduction of an amount paid and received. Instead, it enlarges the right of deduction made available under paragraphs 60(b), (c) or (c.1) by deeming "for the purposes of paragraphs 60(b), (c) and (c.1)" an amount "to have been paid and received by that person". In my view, the subsection 56(12) definition of "allowance" is to be read together with subsection 60.1(1) of the Act and the latter subsection construed accordingly. Accordingly, as the former spouse had no discretion as to the use of the moneys they cannot be deducted by the respondent from his income for the taxation years in question. [See Note 4 below]
__________________
Note 4: In The Queen v. Arsenault, [1996] F.C.J. No. 202, a majority of this Court concluded that payments in the form of cheques made payable to a third party but handed to the former spouse for delivery to the third party in satisfaction of a maintenance which was provided for in a court order and separation agreement, were deductible under paragraph 60(b) of the Act, as on the facts the former spouse "retained a discretion as to how the money was paid".
[16] The Tax Court Judge expressed the view that such a construction would render the subsection non-existent because a taxpayer who makes periodic payments "for the benefit" of a former spouse or children or for both, because such payments are earmarked for particular purposes, can never leave to the spouse a "discretion as to the use" of the moneys. If this be a difficulty it results from the clear language of the statute and, therefore, only Parliament could resolve it. [See Note 5 below]
_________________
Note 5: See R. v. McIntosh, [1995] 1 S.C.R. 686, per Lamer C.J. at p. 704:
I would adopt the following proposition: where, by the use of clear and unequivocal language capable of only one meaning, anything is enacted by the legislature, it must be enforced however harsh or absurd or contrary to common sense the result may be (Maxwell on the Interpretation of Statutes, supra, at p. 29.). The fact that a provision gives rise to absurd results is not, in my opinion, sufficient to declare it ambiguous and then embark upon a broad-ranging interpretive analysis.
See also Wilbur-Ellis Company of Canada Limited v. Deputy M.N.R., Customs and Excise (1995), 129 D.L.R. (4th) 579 (F.C.A.), [1995] F.C.J. No. 1435.
[17] Tax relief is not altogether unavailable under the Act for a taxpayer in the position of the respondent who makes a payment to a third party on behalf of a former spouse or children or both. Provided its requirements are satisfied, subsection 60.1(2) deems "for the purposes of paragraph 60(b), (c) and (c.1)" that an amount so paid is an amount paid by that taxpayer and received by a person on whose behalf it is paid to be "an allowance payable on a periodic basis". It was apparently the existence of this newly adopted subsection which lead the Supreme Court of Canada to state in Gagnon, supra, at page 276:
Before concluding, it should be noted that after this appeal was heard by this Court the Income Tax Act was amended by 1984 (Can.), c. 45, s. 20. As a result of these amendments, amounts like the ones at issue in the case at bar are, on certain conditions and up to certain maximum figures, deemed to be paid and received as allowances payable on a periodic basis.
[14] Accordingly, the only way for payments made directly to third parties to be deductible is to meet the requirements of subsection 60.1(2). Moreover, Stone J.A. clearly indicated that subsection 60.1(2) cannot be invoked to allow the deduction of amounts thus paid when the decree, order, judgment or written agreement, as the case may be, does not provide that subsections 60.1(2) and 56.1(2) apply to any payment under that document. Such an interpretation is justified by one of the objects of that subsection, that of confirming that both parties know that there are tax consequences to such a decree, order, judgment or agreement (see Mambo v. The Queen, [1995] TCJ No. 931 (Q.L.)).
[15] In the instant case, no reference is made in the judgment to subsections 60.1(2) and 56.1(2) of the Act or to the tax treatment of the amounts to be paid by the appellant, as was the case in The Queen v. Larsson, [1997] FCJ No. 1044; and in Pelchat v. The Queen, 97 DTC 945 (TCC), cited by counsel for the appellant. The appellant therefore cannot rely on subsection 60.1(2) to argue that the amounts paid to third parties are deductible.
[16] Moreover, the mortgage, property tax and house insurance payments are payable over and above the $400 monthly alimony the appellant was required to pay his former spouse. These are not amounts paid in replacement of the alimony provided for in the judgment of divorce, as was the case in The Queen v. Arsenault, [1996] FCJ No. 202 (Q.L.). If the appellant did not default in making those payments, the former spouse was not legally entitled to require that payment be made directly to her rather than to the third parties. If he had, she would not have had the discretion to decide how the money was to be paid under the terms of the agreement and the judgment of divorce. She thus had no discretion as to the use of those payments, and therefore they cannot qualify as an allowance within the meaning of subsection 56(12) of the Act.
[17] For these reasons, I am of the view that the appellant was not entitled to deduct the amounts of $700 and of $9,589.44 from his income for the 1995 and 1996 taxation years respectively as alimony since the conditions set out in paragraphs 60(b) and (c) and in subsections 56(12), 60.1(1) and 60.1(2) of the Act have not been met. The Minister's assessments are therefore correct and the appeals are dismissed.
Signed at Ottawa, Canada, this 15th day of March 2000.
|
"Lucie Lamarre" |
J.T.C.C.
Translation certified true
on this 24th day of October 2003.
Sophie Debbané, Revisor