Date: 20000802
Docket: 2000-226-IT-I
BETWEEN:
GORDON W. SKERTCHLY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Rip, J.T.C.C.
[1] This is an appeal, filed under the informal procedure, from an income tax assessment made by the Minister of National Revenue ("Minister") under the Income Tax Act ("Act") in respect of the appellant's 1997 taxation year in which the Minister did not permit the appellant to deduct the sum of $9,168 in computing his income since the amounts were not paid or payable to his spouse on a periodic basis for her support or the support of the spouse or the children of the appellant and his spouse within the meaning of section 60.1 and paragraph 60(b) or in accordance with subsection 60(0.1) of the Act.
[2] The facts are not in issue:
b) the Appellant and Jayne Yvonne Skertchly (the "Spouse") were married in 1982;
c) the Appellant and the Spouse had two children, James and Sarah (the "Children"), from their marriage to each other;
d) the Appellant was living separate and apart from the Spouse since January 21, 1995;
e) the Appellant and the Spouse signed a Separation Agreement on June 6, 1995 (the "Agreement");
f) pursuant to the Agreement, the Appellant was required to pay child support to the Spouse of $500.00 per month per child, for a total of $1,000.00 per month, commencing July 1, 1995;
[3] The Agreement also provided that:
5.1 The Husband will pay $30,000.00 to the Wife as a lump sum support payment in complete satisfaction of his obligation to pay spousal support as follows:
a. $20,000.00, to be paid immediately upon transfer of the Family Residence to the Husband; and
b. $10,000.00 pursuant to Clause 9.6(c) of this Agreement.
(the "Spousal Support").
. . .
5.4 The Husband understands that he is not entitled to deduct the lump sum Spousal Support or any part of it in calculating his income under the Income Tax Act (Canada) except those periodic payments made pursuant to Clause 9.10.
5.5 The Wife understands that she is not required to include the Spousal Support or any part of it in calculating her income under the Income Tax Act (Canada) except to the extent of interest paid under clause 9.9 of this Agreement.
. . .
9.6 The Wife will transfer her entire interest in the Family Residence to the Husband upon:
a. payment of the $100,000.00;
b. payment of the $20,000.00 Spousal Support pursuant to clause 5.1(a.) of this Agreement; and
c. Promissory Note against the Family Residence in favour of the Wife in the amount of $10,000.00 (the "Promissory Note") in the form as indicated in Schedule "E".
. . .
9.10 Should it be the case that the Wife obtains employment during the twenty-four month period commencing October 1, 1995 and ending September 30, 1997, which pays her in excess of $1,200.00 per month gross, the pay out amount to the Wife shall be reduced by $416.66 per month for each month the Wife earns in excess of $1,200.00 gross during the twenty-four month period.
9.10(a) There shall be no payments for 2 years from October 1, 1995 through to September 30, 1997 on the Promissory Note. October 1, 1997 the Wife shall provide the Husband with proof of her monthly income for the last 2 years, and the Husband will pay $416.66 for each month the Wife's income was less than $1,200.00.
9.10(b) The Wife must use her best efforts to obtain steady employment.
9.11 The Wife agrees to provide the Husband with a discharge of the Promissory Note upon payment to her of the $10,000.00 minus any reduction as specified in paragraph 9.10 of this Agreement.
[4] There is also no dispute that:
g) the Appellant and the Spouse signed an amendment to the Agreement on July 7, 1997 (the "Amended Agreement");
h) the Appellant and the Spouse were divorced from each other on September 23, 1997;
i) pursuant to the Agreement, the Appellant made the Support Payments to the Spouse for the support of the Children;
j) the Support Payments were for the period January 1, 1997 to July 31, 1997;
. . .
m) the Payments were $3,056.00 each, paid on July 6, 1997, August 15, 1997 and October 1, 1997.
[5] Mrs. Skertchly earned $1,200 only two months during the two-year period. During each of the other 22 months during the period October 1, 1995 to September 30, 1997, Mr. Skertchly "accrued" $416.66 so that at the end of the period he owed her $9,168 (that is, $416.66 times 22 months). Mr. Skertchly testified that in 1995, when separated from his wife, he was under severe financial difficulty and this arrangement permitted him to defer making any periodic payment to his wife but at the same time accommodating her requirements to obtain support during the 24 months. A Promissory Note in the principal amount of $10,000, subject to adjustments for the months Mrs. Skertchly earned more than $1,200, secured his obligation to her. The parties agreed that if Mrs. Skertchly had earned over $1,200 in each of the 24 months, Mr. Skertchly would owe her nothing at the end of the 24-month period and she would discharge the Promissory Note.
[6] In 1997, Mrs. Skertchly had some financial difficulties: she was in arrears with several of her creditors, including B.C. Hydro. On advice of his solicitor and in order to assist Mrs. Skertchly and their children, Mr. Skertchly paid her $3,056 on each of July 6, 1997, August 15, 1997 and October 1, 1997. Under the Agreement the $9,168 was not due and payable until October 1, 1997.
[7] Mr. Skertchly's position is that pursuant to clauses 5.4, 9.10 and 9.10(a) of the Agreement the "periodic payments [were] accrued over a maximum of 4 months". He also infers that the three payments of $3,056 in July, August and October 1997 were periodic payments eligible for deduction in computing income.
[8] Mr. Skertchly acted on his own behalf and was the only witness.
[9] I cannot agree with the appellant. There is no provision in the Agreement compelling him to make periodic payments to his wife at the time. He agrees in clause 5.1 to pay a lump sum payment to his wife in the amount of $30,000, of which $20,000 is to be paid when he receives title to the family residence and the balance of $10,000, pursuant to clause 9.6(c) of the Agreement. Clause 9.6(c) simply states that Mrs. Skertchly will transfer her interest in the family residence to the appellant upon various payments to her and the delivery of a "Promissory Note" in her favour in the amount of $10,000, which is the amount specified in clause 5.1(b).
[10] There is no clause 9.9 in the Agreement that is referred to in clause 5.5. No part of the amount of the $9,168 in issue appears to represent any interest.
[11] What clause 9.10 states is that the amount Mr. Skertchly is to pay his wife – which I assume from reading all of clause 9 is the sum of $10,000 – is to be reduced in the event in any month she is employed she receives gross pay in excess of $1,200. Clause 9.10 does not compel Mr. Skertchly to pay his wife anything on a monthly basis. Clause 9.10 simply formulates how much of the $10,000 Mr. Skertchly will pay his wife on September 30, 1997. The Promissory Note does not provide for any monthly or other periodic payment of the $10,000. The Promissory Note is to be paid in accordance with clause 9.10 and the sum of $10,000 bears no interest. Clause 9.10(a) specifically provides that "there shall be no payments" during the period from October 1, 1995 to September 30, 1997. The payments Mr. Skertchly made in 1997 were not accrued because there was nothing to accrue: the sum of $10,000 was due on September 30, 1997, subject to any reduction in accordance with clause 9.10.
[12] The assessment is a good assessment. The appeal is dismissed.
Signed at Ottawa, Canada, this 2nd day of August 2000.
"Gerald J. Rip"
J.T.C.C.