Date: 20010223
Docket: 2000-1921-IT-I
BETWEEN:
DAN GRENIER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Hamlyn, J.T.C.C.
[1] These are appeals with respect to the 1996, 1997 and 1998 taxation years.
[2] In computing income for the 1996, 1997 and 1998 taxation years, the Appellant sought to deduct the amounts of $4,284.00, $6,607.68 and $6,607.68 respectively as child support payments made.
[3] The Minister of National Revenue (the Minister) assessed the Appellant for the 1996, 1997 and 1998 taxation years by Notices of Assessment dated September 8, 1997, September 4, 1998 and August 10, 1999 respectively, disallowing the claimed child support payments.
[4] The Appellant served Notices of Objection on August 23, 1999 for the subject taxation years.
[5] The Appellant did not object to the 1996 assessment within the time prescribed by subsection 165(1) of the Income Tax Act (the Act) and therefore the appeal is dismissed for the 1996 taxation year.
[6] On December 3, 1999 the Minister issued a Notification of Confirmation with respect to the 1997 and 1998 taxation years, confirming the assessments.
[7] In assessing the Appellant, the Minister made the following assumptions of fact:
(a) the payments do not qualify as an allowance as required, as they were not paid for the maintenance of a child of the marriage;[1]
(b) in the 1997 and 1998 taxation years, in accordance with the terms of the Appellant's written Separation Agreement dated November 8, 1996, the agreement setting out the payments to be made to third parties has made no reference to subsections 60.1(2) and 56.1(2) of the Act as required.
[8] The issue is whether the purported child support payments are deductible in computing the Appellant's income for the 1997 and 1998 taxation years.
[9] The separation occurred as a result of considerable financial difficulties within the marriage.
[10] The Appellant's case is founded on two documents: a Separation Agreement dated November 8, 1996 and an Ontario Court (Provincial Division) Order dated January 26, 1999.
[11] The Separation Agreement was prepared by the Appellant's ex-spouse and signed and accepted by the Appellant. Neither party had the benefit of legal counsel in the preparation or execution of the Agreement.
[12] At the time of the matrimonial breakdown, both parties were liable for significant matrimonial debts. The support clause from the Separation Agreement in question reads as follows:
4. CHILD SUPPORT
Daniel (the Appellant) has agreed to cover outstanding debts to the credit union in monthly payments of $550.64. Also a debt of $9,000.00 to 794880 Ontario Inc. (Rudy Florio) and a debt to Leon Grenier in the amount of $5,000.00.
[13] The Appellant deducted the purported monthly child support payments of $550.64.
[14] The Court Order of January 26, 1999 recognizes the monthly payments in the Separation Agreement as being a factor in the calculation of child support. It reads:
(a) Daniel shall pay support to Michelle (the ex-spouse) for Mallory (the child), in the amount of $125.00 monthly commencing on December 15, 1998 and on the 15th day of each month thereafter up to and including November 15, 1999. The parties acknowledge that this payment is set at an amount which is less than the Uniform Federal and Provincial Guidelines Act, 1997 Table amount for Ontario and reflects the fact that payments are being made by Daniel on behalf of Michelle, as child support.
[15] Neither the Agreement nor the Judgment indicated that subsections 60.1(2) and 56.1(2) of the Act would apply to third party payments.
[16] The key question remains did the payments as structured qualify as a support amount within the meaning of the Act? Subsection 56.1(4) defines the terms "child support amount" and "support amount" as follows:
"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.
"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. (emphasis added)
Thus, the key questions are: (1) whether the Appellant had the discretion to use the funds as she saw fit, and (2) was the amount described as support for the maintenance of the child of the recipient?
[17] The Appellant believed that his ex-spouse had waived the discretion to use the funds by signing the Agreement. He relied on Marquette v. The Queen[2] in support of this view.
[18] It is significant that the third party payments were not directed to matters normally found in cases of this nature, i.e. rent, school fees, mortgage payments, taxes, insurance, heating, electricity or other utilities. In this case the payment went towards retiring the joint matrimonial debt and not to provide support directly for the use of the child. It is further significant that the payment was not expressed as an alternative to a specified support payment to the ex-spouse. The payment, while called "child support", was designed to retire the matrimonial debt and not to provide for maintenance of the child of the recipient. Moreover, when the matrimonial debt was to be retired, there was no contemplation within the Agreement of "support" payment continuing to the ex-spouse for the benefit of the child.
[19] The further conclusion is that the ex-spouse, after the signing of the Separation Agreement, did not have the discretion to use the amounts as she saw fit.
[20] The Appellant is not entitled to deduct the payments in the 1997 and 1998 taxation years.
[21] The appeals are dismissed.
Signed at Ottawa, Canada, this 23rd day of February 2001.
"D. Hamlyn"
J.T.C.C.
COURT FILE NO.: 2000-1921(IT)I
STYLE OF CAUSE: Dan Grenier and
Her Majesty the Queen
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: February 15, 2001
REASONS FOR JUDGMENT BY: The Honourable Judge D. Hamlyn
DATE OF JUDGMENT: February 23, 2001
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: Scott Simser
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-1921(IT)I
BETWEEN:
DAN GRENIER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on February 15, 2001 at Toronto, Ontario, by
the Honourable Judge D. Hamlyn
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Scott Simser
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1996, 1997 and 1998 taxation years are dismissed.
Signed at Ottawa, Canada, this 23rd day of February 2001.
|
"D. Hamlyn" |
J.T.C.C
[1] This assumption uses the term "allowance". This term is not applicable for the 1997 and 1998 taxation years. In the 1997 and 1998 taxation years the definitions of "child support amount", "commencement date" and "support amount" are found in subsection 56.1(4)
[2] Hak v. R., 99 DTC 36; Raymond Marquette v. The Queen, 99 DTC 3454 (T.C.C.). It is to be noted in Marquette the full decision reflects extensive evidence on the issue of third party payments. The third party payments were directed towards accommodation (taxes, mortgage and electricity of the matrimonial home).