Tax Court of Canada Judgments

Date: 20020517

Docket: 2001-2568-IT-I

BETWEEN:

GORDON BARTHELS,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasonsfor Judgment

Hershfield, J.T.C.C.

[1]            This is an appeal under the Informal Procedure of a reassessment of the Appellant's 1999 taxation year. The subject reassessment denied the Appellant's claim for an equivalent-to-spouse tax credit claimed pursuant to paragraph 118(1)(b).

[2]            By way of an Order of the Supreme Court of British Columbia dated December 4, 1997 the Appellant was ordered to pay child support in respect of two children of the marriage of the Appellant and Diane Barthels. The Appellant and Diane separated in May 1994. The Appellant ceased making payments in respect of one of his children, Stephanie, in 1998 when she came to live with him on a full-time basis. The Order requiring the Appellant to pay ongoing support to Diane in respect of Stephanie was not varied until 1999 when the requirement to pay for her support since coming to live with her father was set aside. The later Order set aside arrears of payments for the support of Stephanie that had accumulated since Stephanie came to live with the Appellant in 1998. The issue in this case is whether the Order setting aside the arrears is sufficient to permit the Appellant to claim the equivalent-to-spouse tax credit in respect of Stephanie. The Respondent asserts that notwithstanding that the arrears were set aside, the Appellant was required in 1999 to make a support payment and that such requirement results in the subject credit not being available to the Appellant in the subject year pursuant to subsection 118(5).

[3]            The assumptions relied on by the Minister more fully set out the factual background in respect of this appeal. Such assumptions are as follows:

8.              In so reassessing the Appellant for the 1999 taxation year, the Minister relied on the following assumptions of fact:

(a)            the Appellant and Diane Barthels (the "Ex-Spouse") separated in May 1994;

(b)            in accordance with a Separation Agreement dated April 19, 1995 (the "Agreement"), the Appellant and the Ex-Spouse agreed to live separate and apart and that they would have joint custody of the two children of the marriage, Jennifer Barthels ("Jennifer") and Stephanie;

(c)            the Agreement also provided that the Ex-Spouse would receive the Child Tax Benefit and that the Appellant would make payments to the Ex-Wife for the support of Jennifer and Stephanie (hereinafter referred to collectively as the "Children") as follows:

-                if the Children are with the Ex-Spouse half time, $400.00 per month per child

-                if the Children are with the Ex-Spouse three quarters of the time, $500.00 per month per child

-                if the Children are with the Ex-Spouse full time, $600.00 per month per child

-                if the Children are with the Appellant three quarters of the time, $300.00 per month per child

-                if the Children are with the Appellant full time, the payments will cease

               

(d)            the Agreement also provided for a cost of living increase the payments each year;

(e)            by way of an Order of the Supreme Court of British Columbia dated December 4, 1997 (the "First Order"), the Appellant and the Ex-Wife were stated to be joint guardians of the Children, access was granted to the Appellant for Stephanie and the Appellant was ordered to pay to the Ex-Wife $963.00 per child per month commencing on January 1, 1998;

(f)             the First Order also provided that the Ex-Wife was to pay to the Appellant an amount of $29,880.00, being his interest in the matrimonial home but that the Ex-Wife shall deduct from the payment an amount of $4,373.57 which was owing to her by the Appellant pursuant to the terms of the Agreement;

(g)            on or about October 7, 1998, Stephanie began to live with the Appellant, having visitations with the Ex-Spouse every Wednesday and every second weekend;

(h)            on November 1, 1998, the Appellant paid an amount of $595.00 to the Ex-Wife for the support of Jennifer;

(i)             on December 1, 1998, January 1, 1999 and February 1, 1999, the Appellant paid the Ex-Wife $394.00 for the support of Jennifer;

(j)             from March 1, 1999 to August 1, 1999, the Appellant paid the Ex-Wife $201.00 per month for the support of Jennifer;

(k)            by way of an Order of the Supreme Court of British Columbia dated August 4, 1999 (the "Second Order") amending the First Order, the Ex-Wife is given sole custody of Jennifer, the Appellant and the Ex-Wife are given joint custody of Stephanie, Stephanie's primary residence will be with the Appellant and the Appellant is ordered to pay to the Ex-Wife $199.00 per month for the support of Jennifer;

(l)             the Second Order also amended the First Order by adding, inter alia, the following paragraph:

                THIS COURT FURTHER ORDERS that the child maintenance arrears in the amount of $5,123.00 sought by the Respondent through the Family Maintenance Enforcement Program (FMEP case no. 35651, FMEP personal ID no. 70592), shall be set aside.

(m)           by way of an Order of the Supreme Court of British Columbia dated January 19, 2000 (the "Third Order"), amended the Second Order by amending the paragraph set out in paragraph (h) above as follows:

THIS COURT FURTHER ORDERS that the child maintenance arrears in the amount of $5,123.00 established June 9, 1999, as well as any subsequently accumulated arrears and interest thereon between June 9, 1999 and the date of this order, over $199.00 per month, sought by the Respondent through the Family Maintenance Enforcement Program (FMEP case no. 35651d, FMEP personal ID no. 70592), be set aside.

(n)            from January 1, 1999 to August 1, 1999, the Appellant was required, pursuant to the First Order, to pay to the Ex-Wife $963.00 for the support of Stephanie.

[4]            The Appellant did not take issue with these assumptions except as to the assumption in paragraph (n). I also note that the assumptions are somewhat misleading in that the First Order granted sole custody of both children to Diane and charged her with the primary responsibility for their day-to-day care. Indeed the Appellant's access to the children was quite limited and, like most of the provisions of that order, had been arrived at by consent. That is, the First Order contemplated a consent regime that required payments on the basis that both children would be living with and provided for by Diane. Similarly, the earlier agreement between the parties expressly provided that support payments were conditional on where the children resided.

[5]            The assumptions also failed to mention that after setting out the child support obligations, the First Order goes on to state:

THIS COURT FURTHER ORDERS that the quantum of child maintenance shall be reviewable upon a material change in circumstances of the parties ...

[6]            The Appellant asserts that the Second and Third Orders setting aside his arrears for 1999, effectively and retroactively vitiated his requirement to make the support payments in respect of Stephanie at any time in the 1999 taxation year. While the Respondent did not take issue that the arrears in respect of 1999 were set aside, he maintains, as set out in paragraph (n) of the assumptions, that the Appellant was from January 1, 1999 to August 1, 1999 required, pursuant to the First Order, to pay his ex-wife child support in respect of Stephanie.

STATUTORY PROVISIONS

[7]            Paragraph 118(1)(b) permits the deduction from an individual's tax payable an amount calculated by a formula where the individual supports another person, who is wholly dependent on that individual, in a home maintained by that individual. That the requirements of that paragraph have been met in respect of the Appellant's claim for supporting Stephanie are not in dispute, so there is no need to set out such requirements in detail. The issue is in respect of the application of subsection 118(5) which provides as follows:

118. (5) No amount may be deducted under subsection (1) in computing an individual's tax payable under this Part for a taxation year in respect of a person where the individual is required to pay a support amount (as defined in subsection 56.1(4)) to the individual's spouse or former spouse in respect of the person and the individual

(a) lives separate and apart from the spouse or former spouse throughout the year because of the breakdown of their marriage; or

(b) claims a deduction for the year because of section 60 in respect of a support amount paid to the spouse or former spouse.

ANALYSIS

[8]            The Respondent seeks to deny the credit pursuant to subsection 118(5) on the basis that the Appellant was, in 1999, until the Second Order, required to pay support in respect of the person (his daughter) that he was claiming as his dependent. The Respondent argues that the fact that the Appellant never made any payments under the First Order in 1999 and that his requirement to do so was relieved by the Second and Third Orders do not change the fact that there was in 1999 a requirement to pay and as such the limitation in subsection 118(5) applies. The Second and Third Orders setting aside the 1999 arrears in respect of the payments for Stephanie's support do not on the terms of such Orders expressly attempt to vitiate the requirement on a retroactive basis. By setting aside the arrears for the period in 1999 for which the First Order imposed a requirement to pay, the Second and Third Orders acknowledged the requirement but extinguished the liability arising from it as at the date of such Orders.

[9]            While the Respondent's position is correct as to the Second and Third Orders not being expressly retroactive, I am not satisfied that they need be retroactive in this case to ensure the Appellant's claim for the subject tax credit.

[10]          Firstly, I point out that the Act seems to suggest that the custodial parent of a child wholly dependent on that parent for support is entitled to the credit provided that that parent does not pay support. The Appellant's situation in the subject year fits within this general scheme. More particularly, the scheme of these credit provisions have been purposefully integrated with the new child support regime that ensures that child support payments are not deductible to the payer and are not taxable in the hands of the recipient. The budget introducing this new regime included materials that described, in part at least, the interrelationship between the entitlement to the equivalent-to-spouse credit and the new child support regime as follows:

The equivalent-to-married credit is provided to a single parent of a child under the age of 18. Currently, the Income Tax Act provides that the recipient of child support, not the payer, is eligible to claim the credit.

This treatment will continue to apply under the new rules. This approach is consistent with the new federal child support guidelines, under which award levels are set based on the assumption that it is the recipient spouse who claims the equivalent-to-married credit. [1]

Consistency with the new child support guidelines would not be advanced by denying the equivalent-to-spouse credit to the supporting custodial parent. Clearly in the case at bar, Diane is not an individual entitled to the credit in respect of Stephanie. Diane has not supported Stephanie at any time in 1999 in a home maintained by her (Diane). The scheme of these provisions cannot be taken to intend that the supporting custodial parent be denied the equivalent-to-spouse credit.

[11]          Secondly, I note that subsection 118(5) has a potential ambiguity in that one might ask the relevance of it not expressly stating when the requirement to pay a support amount needs to be in place. It is somewhat unusual that that subsection denies the credit "for a taxation year" where there is "a requirement to pay a support amount" but makes no mention of when that requirement must have come into existence or have been extinguished. More typically, exhaustive drafting styles evidenced in the Act might have said the credit is denied where there is "in the year" or "at anytime in the year" or "in respect of the year or any part of the year" a requirement to pay a support amount. While I hesitate to suggest that these cumbersome provisions be made more cumbersome by adding further language, I am inclined in this case to suggest that by not adding a time reference as to when the requirement to pay must be in existence, an extinguishment, at any time, of the requirement to pay any support amount "in respect of the year" might well be sufficient to escape the limitation imposed by that subsection. Certainly in this case I see no mischief in such a statutory construction approach.

[12]          Thirdly, I find that the First Order payment requirement was inherently conditional on the custody situation set out in that order. That situation changed in the year preceding the subject year and remained changed throughout the subject year. The First Order was not meant to apply to such case. The Second and Third Orders setting aside the arrears was, in my view, perfunctory and must be given the same effect as setting aside the order that gave rise to the arrears. The Second and Third Orders acknowledged the state of affairs, the legal arrangement, as agreed to when the First Order was made. They acknowledged the inherently conditional nature of the First Order and clarified that the requirement to pay child support for Stephanie was not to have effect when the premises on which that requirement was imposed ceased to exit. These Orders, while not expressly retroactive in vitiating that requirement, have that effect nonetheless, in my view.

[13]          While I do not wish to dwell on the force, effect or validity of an order that appears to be inherently conditional, it is important at least to acknowledge what I believe to be a fundamental aspect of judgments and orders. They have full force and effect until set aside.[2] That is, the process for rectifying an order based on certain premises is to set it aside or vary it if and when those premises fail or change. Understanding the meaning then of "setting aside" orders or setting aside prescriptions contained in orders, is of some considerable importance in dealing with orders or judgments that are, as in many family court judgments it seems, inherently conditional. The issue in cases where judgments are inherently conditional on the maintenance of the status quo at the time the order is given, is identifying, and accepting, the process by which they are set aside and determining what the setting aside of such judgments means in any given situation.

[14]          Consider the case of Biggs v. Canada [3]. The facts and issues in that case were similar to the case at bar except the order of the Court requiring child support payments be made by the Appellant in that case expressly provided that such payments continued only for as long as the child resided with the Appellant's ex-spouse or until further order of the Court. The child ceased to reside with the Appellant's spouse and, although there was no further order of the Court, the parents entered into an agreement, terminating the child support requirement, to supersede the order of the Court. While such agreement could not settle the issue or supersede the order of the Court, Judge Beaubier found, for the purposes of subsection 118(5) of the Act at least, that the requirement to pay the child support ceased at the time the child ceased to reside with the ex-spouse. Given that a finding was required for the purposes of the Act and given the intent of the subject provisions of the Act, I have no difficulty accepting that a Judge of this Court can make the necessary determination, that the child's residence with the ex-spouse had ceased, in order to find that the order of the Supreme Court of British Columbia did not thereby impose a requirement to pay child support during the relevant period.

[15]          While the wording of the child support order in the Biggs case suggests an argument that the payment requirement was for a determinable duration and thereby did not need to be set aside, I fail to see any practical difference between the order dealt with in Biggs and the Orders I am facing in the case at bar. In both cases it is absolutely clear that the requirements to pay were premised and conditioned on the supported child living with the ex-spouse. I would find it difficult therefore to defend the judgment in Briggs without affording the Appellant in the case at bar a similar outcome. That the order and payment requirement in Biggs were judicially recognized by this Court as having ceased, should not give a better result than in the case where a judge of the Court making the order sets it aside or sets aside a requirement imposed under it. This takes me to consider the meaning of the term "set aside".

[16]          Black's Law Dictionary defines "set aside" as "to reverse, vacate, cancel, annul, or revoke a judgment, order, etc.".[4] There are no Canadian legal dictionary definitions available to my knowledge but there is one case reference to the term "set aside" used in defining "rescind" as "primarily means to annul, abrogate, set aside, or extinguish".[5] This suggests that "setting aside" has the same meaning as "annul". It also suggests that "setting aside" has the same meaning as "extinguish" which I would have thought has a different meaning than "annul". Other cases have suggested it means "quash".[6] The Canadian Oxford Dictionary defines "quash" to mean "to declare no longer valid" which is a definition of "setting aside" that the Respondent in this case might favour.[7] On the other hand the derivation of the word "quash" from Middle English, Old French and Late Latin all suggest it derives from words meaning null or void.[8] One English definition found in "A Dictionary of Modern Legal Usage" states "This phrase meaning 'to vacate' is sometimes misunderstood by non-lawyers." [9] The commentary goes on to suggest the phrase is misinterpreted as having the more common meaning of being set to the side as if on a temporary basis. It suggests too that the American legal usage that holds the phrase to mean "to annul, to make void" is an extraordinary meaning that has laid a trap for the unwary. It seems then that "setting aside" might have a range of meanings depending on the context.

[17]          I do not mean in this informal procedure case to define or adopt a particular definition of the phrase "set aside". I am satisfied however that setting aside arrears arising from an order does more than suggest that the requirement under that order giving rise to such arrears is "no longer enforceable". It vitiates that aspect of the order or judgment that gave rise to the payment requirement in the sense of giving it no effect even during the period it purported on its own terms to have effect. While it might be going too far in some circumstances to say that setting aside a judgment or order or aspect of it voids it ab initio, I have no difficulty in the context of the case at bar in finding that setting aside the arrears was to vitiate the requirement to make any support payments for Stephanie in 1999 and that at law there was no time in 1999 that the Appellant was required to make such payment. Whether the Second and Third Order were expressly said to have retroactive effect or not, that was the result in setting aside the arrears for 1999. The payment requirement was, adopting the regime consented to by the parties, intended to be conditional on custody. In this context, treating the "setting aside" of the arrears arising from such requirement, as vitiating the requirement as at the time that condition failed, seems appropriate. Further, even an extinguished requirement to pay is not, in my view, a requirement to pay as contemplated in subsection 118(5) where that provision has not expressly or, in my view, even implicitly, placed relevance on whether the requirement was a requirement at a particular time before it was extinguished. As noted, (see paragraph 11 above) such indication of relevance is absent from the subject provision of the Act.

[18]          Accordingly, the appeal is allowed with costs.

Signed at Ottawa, Canada, this 17th day of May 2002.

"J.E. Hershfield"

J.T.C.C.

COURT FILE NO.:                                                 2001-2568(IT)I

STYLE OF CAUSE:                                               Gordon Barthels and

                                                                                                Her Majesty the Queen

PLACE OF HEARING:                                         Vancouver, British Columbia

DATE OF HEARING:                                           February 20, 2002

REASONS FOR JUDGMENT BY:      The Honourable Judge J.E. Hershfield

DATE OF JUDGMENT:                                       May 17, 2002

APPEARANCES:

For the Appellant:                                                 The Appellant himself

Counsel for the Respondent:              D. Friday (Student-at-Law)

COUNSEL OF RECORD:

For the Appellant:                

Name:                               

Firm:                 

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

2001-2568(IT)I

BETWEEN:

GORDON BARTHELS,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on February 20, 2002 at Vancouver, British Columbia, by

the Honourable Judge J.E. Hershfield

Appearances

For the Appellant:                      The Appellant himself

Agent for the Respondent:          D. Friday (Student-at-Law)

JUDGMENT

          The appeal from the assessment made under the Income Tax Act for the 1999 taxation year is allowed, with costs, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.

Signed at Ottawa, Canada, this 17th day of May 2002.

"J.E. Hershfield"

J.T.C.C.