Tax Court of Canada Judgments

Docket: 2002-3460(IT)I, 2003-1140(IT)I

BETWEEN:

ROBERT WALKER,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeals heard on June 13, 2003, at Nanaimo, British Columbia,

By: The Honourable Justice C.H. McArthur
Appearances:
For the Appellant:	The Appellant himself
Counsel for the Respondent:	Johanna Russell

____________________________________________________________________

JUDGMENT

          The appeals from assessments of tax made under the Income Tax Act for the 2000 and 2001 taxation years are allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant is entitled to claim the amounts for child support payments of $3,600 and $1,500, respectively, pursuant to paragraph 60(b) and section 60.1 of the Act.

Signed at Ottawa, Canada, this 27th day of October, 2003.

"C.H. McArthur"

McArthur J.

Citation: 2003TCC632

Date: 20031027

Docket: 2002-3460(IT)I 2003-1140(IT)I

BETWEEN:

ROBERT WALKER,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

McArthur J.

[1]      Robert Walker, the Appellant, paid child support payments of $3,600 in 2000 and $1,500 in 2001. The issue is whether he can deduct these amounts in computing his income. The Appellant represented himself.

[2]      The facts are not in dispute. The Appellant was in a common-law relationship with Debra Erickson (Debra) on September 15, 1991 when their daughter Katherine was born. By Separation Agreement dated April 8, 1993.[1] Debra was given custody and the Appellant was required to pay $300 per month commencing March 1, 1994 for the support of Katherine.

[3]      The Separation Agreement was filed in the Provincial Court of British Columbia on May 25, 1993. The Appellant has paid Debra for the support of Katherine, pursuant to the Agreement since March 1994.

[4]      The first question is whether a valid joint election form was filed with the Minister of National Revenue (the Minister). If this form is valid it would make payments made by the Appellant no longer deductible after April 1997. A copy of an election agreement was presented in evidence by Debra, which contained two signatures.[2] The Appellant denied having signed it. Debra testified that she signed it and the Appellant signed it in her presence. She added that she filed the form with her 1997 income tax return.

[5]      Exhibit R-3[3] indicates that this election does not appear to have been filed. Canada Customs and Revenue Agency (CCRA) had no record of it having been filed. This contradicts Debra's testimony. Her testimony further conflicted with that of the Appellant. It boils down to a finding of credibility. I accept the evidence of CCRA that it was never filed as required by the Income Tax Act (the Act). This tips the scale in the Appellant's favour and I find that the joint election filed is invalid and give it no effect.

[6]      The next determination to be made is whether the Act provides for deduction of support payments by a common-law spouse. The Respondent's counsel very ably described the complex legislative scheme. The Appellant relies on subsection 252(4) although his input was very limited. This is not surprising given the confusing interconnecting sections.

[7]      Briefly, paragraph 60(b) requires the support payments to meet the definition set out in subsection 56.1(4). Support amount, relevant to the present situation, requires the recipient to be a former common-law partner with the amount receivable under an order of a competent tribunal or under a written agreement. The conditions are met except that the Respondent submits that Debra was not a "spouse" or "former spouse". Eligibility of current and former common-law partners was recently added in the definition of subsection 56.1(4), effective 2001. Previously, the eligibility of common-law partners was provided in subsection 252(4) through an extended meaning of spouse pursuant to a 1994 amendment applicable after 1992. This was repealed for 2001 and subsequent years.

[8]      Subsection 252(4) reads as follows:

252(4) In this Act,

              (a)         words referring to a spouse at any time of a taxpayer include the person of the opposite sex who cohabits at that time with the taxpayer in a conjugal relationship and

(i)          has so cohabited with the taxpayer throughout a 12-month period ending before that time, or

(ii)         would be a parent of a child of whom the taxpayer would be a parent, if this Act were read without reference to paragraph (1)(e) and subparagraph (2)(a)(iii)

and, for the purposes of this paragraph, where at any time the taxpayer and the person cohabit in a conjugal relationship, they shall, at any particular time after that time, be deemed to be cohabiting in a conjugal relationship unless they were not cohabiting at the particular time for a period of at least 90 days that includes the particular time because of a breakdown of their conjugal relationship;

(b)         references to marriage shall be read as if a conjugal relationship between 2 individuals who are, because of paragraph (a), spouses of each other were a marriage;

(c)         provisions that apply to a person who is married apply to a person who is, because of paragraph (a), a spouse of a taxpayer; and

(d)         provisions that apply to a person who is unmarried do not apply to a person who is, because of paragraph (a), a spouse of a taxpayer.

[9]      Because the common-law relationship ended before 1993 when the extended meaning of spouse came into effect, counsel submits that the Appellant's 2000 payments are not considered support payments. She further submits that the 2001 payments are not deductible according to the transitional provisions.

[10]     The primary position of counsel for the Respondent is that subsection 252(4) should not be read retroactively. In brief summary, counsel supports her position with the following. When the taxpayer and his former common-law partner signed their support agreement in 1993, the tax-deductibility provisions now referred to did not exist and were not contemplated by them. To interpret the provisions retroactively would be to change the rights of the parties without their consent and therefore be unjust. A transitional Rule 144 explicitly allows common-law couples to opt into the new tax treatment of common-law relationships for the 1998, 1999 and 2000 taxation years if they file an election prior to April 2001 - which suggests subsection 252(4) was not intended to apply retrospectively. Transitional Rule 145 also allows other common-law relationships to opt into the new tax treatment for 2000 and subsequent taxation years if they file an election form prior to the changes receiving Royal Assent - which again suggests subsection 252(4) is not retrospective or everyone would already be considered a common-law partner. The amendment in 1993 adding subsection 252(4) states that the new subsection is to "apply after 1992". It is well known in statutory construction that legislation is not presumed to be retroactive.

[11]     Counsel states that subsection 140(4) of Income Tax Amendments Revision Schedule VIII, C.7, p.645, demonstrates the clear intent of the legislature that subsection 252(4) is to apply after 1992 and ignoring these words is to give it retroactive effect. To the contrary, the preponderance of the case law concludes that to accept counsel's argument is to ignore the words "at any time" in subsection 252(4) or as Bowman J. stated in Hunter v. R.,[4] at least seeks to amend the phrase to read "at any time after 1992".

[12]     Counsel referred to several cases, most of which were carefully reviewed by Bowman J. in Hunter, supra. I have relied on his comments in the following brief summaries: In Carey v. R.,[5] Bowie J. applied subsection 252(4) to permit the deduction under circumstances similar to the present case. In Bromley v. R.,[6]Bell J. declined to follow Carey deciding somewhat reluctantly, that subsection 252(4) applies only to taxation years after 1992. In Scott v. Canada,[7] the issue was the deductibility of payments made in 1997 under a 1992 agreement, and Hershfield J. permitted the deduction. In Girard v. R.,[8] Miller J. explicitly mentions the date of the agreement as being highly relevant on the issue of retrospectivity. In Hollands v. Canada[9], Teskey J. interpreted subsection 252(4) to be retrospective. Both Hollands and Scott were decided on the basis of giving meaning to the words "at any time". In Skory v. R.,[10] Judge Miller cited his decision in Girard in acknowledging that subsection 252(4) was retrospective in its application.

[13]     In Hunter, Bowman J. allowed a retrospective application of subsection 252(4). In doing so, he commented on the difference between retroactive and retrospective. Retroactive is to change the law as it existed at a prior time. To be retrospective is to merely attach new consequences to a prior event. A subtle difference to be sure. I agree with the majority of the case law. Subsection 252(4) is retrospective. Counsel for the Respondent used the words retroactive and retrospective interchangeably. The provision in subsection 252(4) is retrospective, not retroactive.

[14]     Of the cases referred to, only Bromley did not give retrospective effect to subsection 252(4). The majority gave meaning to the phrase "at any time". This is the crux of my decision. The amending statute provided that it "apply after 1992". I interpret this to simply authorize the use of the new provision as of 1993 even though it was not proclaimed until 1994.

[15]     In Girard, supra, Miller J. noted the difference between judges. Judges Bell and Judge Bowie allowed the deduction in 1998 under a separation agreement made in 1995 arising out of a common-law relationship that ended in 1991. I agree with his following comments at paragraphs 9, 10, 11 and 12:

9       Pursuant to this section [252(4) I have no hesitation in finding the Appellant and Ms. Johnstone were spouses and qualify as such for purposes of determining "support amounts". There is nothing in section 252(4) of the Act that indicates the section is not to apply to relationships before a certain period of time. This was the law in 1998, the year in which the deduction is sought. The Respondent contends I must look at the law at the time the couple separated. I do not accept that argument. She cited the decision of this Court in Bromley v. R. 2000 CarswellNat 3033, [2001] 1 C.T.C. 2468. In that case Judge Bell found section 252(4) "applies only to taxation years after 1992". I find that the taxation year in question in this case is the Appellant's 1998 taxation year. In 1998 section 252(4) was part of our legislation and it defined "spouse" for all purposes of the Act to include someone who fits Ms. Johnstone's description. Section 140(4) of the Act Amendment Revisions introducing this amendment did not state that the conjugal relationship referred to in section 252(4) must have existed after 1992; it simply stated that the subsection applies after 1992. I contrast this to subsection 20(11) of the Amendment Revisions, which differs significantly:    it states most exactly that the section refers to a breakdown of marriage after 1992. If the legislators had used such exact language in introducing section 252(4), my conclusion would differ.

¶ 10       The interpretation put on the timing of the applicability of section 252(4) is either:

1.    For taxation years after 1992 I am to interpret "spouse" in accordance with section 252(4); or

2.    I am to interpret "spouse" in accordance with section 252(4) for only those conjugal relationships existing after 1992.

¶ 11       I favour the former approach. For the taxation year 1998 I rely on section 252(4) and find the Appellant's relationship with Ms. Johnstone falls within that definition notwithstanding that relationship concluded prior to 1993.

¶ 12       In Bromley v. R. Judge Bell recognized that Judge Bowie also came to a different conclusion in Carey v. R., 1999 CarswellNat 562, [1999] 2 C.T.C. 2677, D.T.C. 3502 allowing the deductibility of amounts paid in 1994 and 1995 by a common law husband in connection with a relationship which had ended in 1988. It is cause for some uncertainty in the tax community and public generally when the introduction of amending legislation is open to differing interpretations by a Court. Judge Bell put it as follows in paragraph 10 of his Judgment:

10 ... Lack of precision in the legislation in this regard is extremely unfortunate because faulty legislation, not clearly presenting the intent of Parliament, causes taxpayers concern, time and expense in pursuing objection and appeal procedures.

[16]     The new section 60(b) (Canadian Income Tax Act, Part I 2000) applies to amounts received under a decree, order or judgment of a competent tribunal or under a written agreement, "with respect to a breakdown of a marriage occurring after 1992". From an absence of a specified time period for eligible common-law relationship breakdowns within the amending statute, it can be inferred that Parliament intended the words "at any time" apply in the same way.

[17]     The Respondent would agree that the Appellant is entitled to deduct the amounts he claims in 2001, my having found that he is entitled to deduct his amounts claimed for 2000. Page 26 of the Transcript reads as follows:

... The analysis for the 2001 year, the Respondent submits that if your Honour found that the Appellant was entitled to deduct these amounts in 2000, then for the transitional rules for the 2001 definition of support payments he would be allowed to deduct in 2001. Conversely, if Your Honour found that he was not able to deduct in 2000, the transitional rules would say that he would not be able to have the benefit of the 2001 common-law partner definition until both parties filed a joint election, which has not been filed - that type of election, in any event - which has not been filed and therefore should not be allowed, the deduction in 2001, until such time an election is filed.

[18]     The last submission from the Respondent is that the agreement filed in the Provincial Court of British Columbia (Exhibit R-1) does not constitute an order contemplated by paragraph 56.1(b) definition of "support amount".

[19]     There are several Tax Court decisions dealing with legislation similar to that of British Columbia in the present instance. The decisions are evenly split on the question of whether such orders are orders "made by a competent tribunal" under the Act. Decisions in Fantini v. R.,[11] Fraser v. R.[12] and Hewko v. R.[13] have ruled no. They concluded that what the provincial legislation is doing is making the agreements court orders only for internal provincial enforcement purposes and that does not make them court orders for income tax purposes.

[20]     The decisions in Hollands[14] and Mullen v. R.[15] found that the provincial orders were court orders for income tax purposes. The most recent is Judge Mogan's decision in Mullen which carefully reviews the other cases. In all of these cases, there was no spousal relationship involved. In this appeal, there was a common-law relationship.

[21]     The basic provision of the Act which permits the deduction of support payments is paragraph 60(b) - Formula A, where the essence is the total of all amounts, each of which is a "support amount" that is deductible. Support amount is defined in subsection 56.1(4) as follows:

"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 common-law partner or former spouse or common-law partner" of the payer, the recipient and payer are living separate and apart because of the breakdown of their marriage or common-law partnership 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.

[22]     The Appellant comes under the "support amount" definition in paragraph 56.1(4)(a) and not paragraph 56.1(4)(b). The cases referred to by the Respondent deal with the definition of paragraph 56.1(4)(b) and do not apply. The recipient is a former common-law partner of the payer (the Appellant) living separate and apart because of a breakdown of their common-law partnership and the amount is receivable under a written agreement.

[23]     The amounts are deductible by the Appellant and the appeals are allowed, without costs.

Signed at Ottawa, Canada, this 27th day of October 2003.

"C.H. McArthur"

McArthur J.

CITATION:

2003TCC632

COURT FILE NO.:

2002-3460(IT)I and 2003-1140(IT)I

STYLE OF CAUSE:

Robert Walker and Her Majesty the Queen

PLACE OF HEARING:

Nanaimo, British Columbia

DATE OF HEARING:

June 13, 2003

REASONS FOR JUDGMENT BY:

The Honourable Justice C.H. McArthur

DATE OF JUDGMENT:

October 27, 2003

APPEARANCES:

For the Appellant:

The Appellant himself

Counsel for the Respondent:

Joanne Russell

COUNSEL OF RECORD:

For the Appellant:

Name:

N/A

Firm:

N/A

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada

---