Date: 20030319

Docket: 2001-2138(IT)I

BETWEEN:

MARIA E. MOSCATO,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

For the Appellant: The Appellant herself

Counsel for the Respondent: Tamara Sugunasiri

____________________________________________________________________

REASONS FOR JUDGMENT

(Delivered orally from the Bench at

Toronto, Ontario, on January 10, 2002)

Sarchuk J.

[1]      These are appeals made from assessments of tax for the Appellant's 1997 and 1998 taxation years to include in her income support payments received pursuant to a Court Order issued prior to May 1997. The facts in these appeals are not in dispute:

(a)         in the 1997 and 1998 taxation years, the Appellant received the amounts of $6,000 and $6,000 respectively (the "Amounts");

(b)         a Court Order issued on July 12, 1992 (the "Order") and an amending agreement issued on December 17, 1993, required the Appellant's Husband Anthony Moscato (the "Spouse") to pay directly to the Appellant the amount of $600 per month for the support of their son Ross Gregory Moscato (the "Child");

(c)         an agreement was signed by the Appellant and the Spouse on December 27, 1996 (the "Agreement"), lowering the amount of the child support payments to $500 per month;

(d)         the Agreement did not provide for child support payments received after April 30, 1997 to be subject to the new rules and therefore not taxable or deductible;

(e)         the Appellant and the Spouse have not both signed, and filed with the Minister, a T1157 form "Election for Child Support Payments" that would allow the child support payments to be excluded from the Appellant's income;

[2]      The difficulty the Appellant has encountered is that the legislation is absolutely precise in terms of how pre-May 1, 1997 agreements are to be dealt with. That is so because the calculation was done under the old rules and the maintenance payments, paid and received, take into account the fact that they would be considered as reportable income by one person (the Appellant in this case) and deductible by the other person. Now, as of May 1, 1997, you have a completely different regime and the legislation changed completely. Currently, the amount that was paid to the recipient would be received tax-free and would not be deductible by the payor. That change led, in many cases, to a reconsideration of the existing agreement with the result that the parties and their lawyers sought new agreements to take into account the legislation. That is why these rules are so rigid, and they are rigid, there is no question about it.

MS. MOSCATO:         It's just that magic date.

HIS HONOUR:            That magic date.

MS. MOSCATO:         I don't know why it's such --

HIS HONOUR:            And you have looked at the material but it's technical. It's so terribly technical. It's not something any one person would easily understand. In fact lawyers don't understand it.

[3]      There are a number of things that have changed. In order to achieve the result that was sought by Parliament (that is to change the law to comply with a Supreme Court decision so that the recipients would not have to include child support payments in their income), this four-paragraph system was enacted. The basic effect of the legislation is, as counsel has indicated, that to be subtracted in accordance with the formula in paragraph 56(1)(b) of the Income Tax Act,[1] the child support amount must be one that became receivable under an order or agreement on or after its commencement day and before the end of that first year.

[4]      One of the articles on the subject contained the following comment:

In many cases agreements made before 1997 will not have a commencement day. In accordance with the formula in paragraph 56(1)(b) child support amounts receivable under pre-May 1997 orders without a commencement day would not produce the total support amounts as described in paragraph (a), thus such child support amounts will continue to be included in computing the recipient's income. However, a commencement day will exist for certain orders made before May 1997 in limited circumstances.

For example, in the type of an agreement that you signed, that is pre-April 30, 1997, a change to the new regime can occur only where the recipient and payor jointly elect in prescribed form and manner (that is form T1157) and file the election with the Minister. When done, the day the parties specify in the election to be the commencement day is the one that will be used. The second way it could be done is if the order was varied after April 1997 to change the child support amount payable. The day on which the first payment is to be made becomes a commencement day. As well, if a subsequent order is made after April 1997 in effect changing the total support amounts, the commencement day of that order would bring you into the new regime. Lastly, where the order, agreement or any variation thereof specifies a commencement date for these purposes, the date so stated. In other words, if your order had stated "as of May 1 or May 15" then it would have been effective. You could have signed the agreement in issue, as you did on December 27, 1996, and you could have deliberately stipulated therein a specific commencement day after May 1, 1997 and that would have been acceptable.

[6]      When you look at the whole picture and how specific Parliament was in setting the rules, even if there had been an oral agreement as you have suggested in your case, it just would not be sufficient in law. That is the problem that you really face, since even accepting your testimony, this document does not reflect the agreement which you say was actually made, i.e. that the amounts would be within the new scheme. Oral agreements do not wash for the purposes of virtually any of the maintenance sections in the Income Tax Act. Oral agreements will just not do, there has to be a written agreement. You are not the first one who finds herself in a situation such as yours. You do not want to retain a lawyer, it is expensive, everybody understands that. You trust the other party. You enter into an oral agreement and then somewhere down the road it ends up in this court. And the court has to say you cannot deduct maintenance which is paid on some basis other than as a result of a court order or a written maintenance agreement. It is not an easy case for us to deal with. We recognize that there was a long period of time when this matter could have been rectified. But unfortunately there is nothing in law that the court can do to alleviate your situation. The agreement that you have is in writing, it does not comply with the requirements of the Act, and is not even close unfortunately. This court is not a court of equity. We do not have a broad jurisdiction such as the Ontario Superior Courts and we are limited to dealing with a very simple question, has the taxpayer complied with the relevant provisions that will entitle her to the deduction that she is seeking, or the exemption that she is seeking. And if that does not occur, I do not have the authority to say, notwithstanding that fact in this circumstance, it would only be fair and just to allow the appeals. I do not have that authority.

[7]      So unfortunately, as you have no doubt gathered by now, your appeals must be dismissed.

HIS HONOUR:            Now I suggest you find yourself a lawyer and take steps to, because this agreement is still in effect I assume. Are maintenance payments still being made?

MS. MOSCATO:         Yes.

HIS HONOUR:            Unless you take steps to change this by going to the Ontario Court, you are going to continue to have to take it into income. So you had better move as quickly as possible. And the fact that you can get that order retroactive before April 1 you might salvage the year 2000. I'm sorry Madam, but that is -

MS. MOSCATO:         You know, I thought this law was supposed to be for mothers but it's not.

HIS HONOUR:            I'm sorry?

MS. MOSCATO:         No, I'm sorry. I just can't believe that I'm going to lose a whole year's support in effect. I'm just going to have to find $6,000.00.

Signed at Ottawa, Canada, this 19th day of March, 2003.

"A.A. Sarchuk"

J.T.C.C.

COURT FILE NO.:

2001-2138(IT)I

STYLE OF CAUSE:

Maria E. Moscato and Her Majesty the Queen

PLACE OF HEARING:

Toronto, Ontario

DATE OF HEARING:

January 10, 2002

REASONS FOR JUDGMENT BY:

The Honourable Judge A.A. Sarchuk

DATE OF JUDGMENT:

January 22, 2002

APPEARANCES:

For the Appellant:

The Appellant herself

Counsel for the Respondent:

Tamara Sugunasiri

COUNSEL OF RECORD:

For the Appellant:

Name:

N/A

Firm:

N/A

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada

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