Date: 19981224
Docket: 97-3059-IT-I
BETWEEN:
LINDA LEGROULX,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for judgment
Lamarre, J.T.C.C.
[1] The Appellant has appealed income tax assessments for her 1994 and 1995 taxation years for which the Minister of National Revenue (the "Minister") disallowed the amounts of $7,700 and $9,200 claimed in respect of each of those taxation years. The Minister is of the view that these amounts were lump sum alimony payments made to a former spouse, which did not qualify as "periodic" payments under paragraphs 60(b) and 60(c) of the Income Tax Act ("Act") nor did they qualify as prior payments under subsection 60.1(3) of the Act as the payments were not made prior to the date of a court order.
Facts
[2] The parties filed a statement of "Agreed Facts" which reads as follows:
1. On March 21, 1991, the District Court of Ontario ordered the Appellant to pay to her spouse, David Caldwell, interim child support for each of the two children of the marriage, in the amount of $500, commencing April 1, 1991.
2. On February 11, 1993, Mr. Justice Cunningham of the Ontario Court (General Division) ordered the Appellant to pay to her spouse, David Caldwell, child support for each of the two children of the marriage, the sum of $500 per month per child.
3. On January 26, 1995, the Ontario Court (General Division) (Divisional Court) set aside the award as referred to [in] paragraph 2 and ordered the Appellant to pay her spouse, David Caldwell, "child support in the amount of $825 per month per child, effective December 1, 1992".
4. Ms. LeGroulx paid, pursuant to the Cunningham Judgment, and Revenue Canada allowed the deduction of monthly child support payments in the 1992, 1993, 1994 and 1995 taxation years. Mr. Caldwell received and included in income the monthly child support payments.
5. An amount of $16,900 was payable as a result of the Order increasing the child support by $325 per month per child effective December 1, 1992. The $16,900 was calculated as follows:
December 1992 $ 650
1993 taxation year 7,800
1994 taxation year 7,800
January 1995 650
Total $16,900
6. In April 1995, the Appellant made two payments, $7,700 and $9,200 respectively, to David Caldwell, in accordance with the Order.
7. In computing her income for the 1994 and 1995 taxation years, the Appellant deducted amounts of $19,800 and $28,250 respectively with respect to alimony or maintenance payments. The Minister disallowed the amounts of $7,700 and $9,200 claimed in respect of the Appellant's 1994 and 1995 taxation years, respectively, on the basis that the amounts were lump sum alimony payments made to a former spouse which did not qualify as "periodic" under paragraph 60(b) of the Income Tax Act (the "Act") nor did they qualify as a prior payment under subsection 60.1(3) of the Act as the payment was not made prior to the date of the court order.
8. David B. Caldwell did not report as income the payment in the amount of $16,900 in his 1994 or 1995 taxation returns.
9. The Appellant concedes that the $7,700 deducted by her in computing her income for the 1994 taxation year was not paid during the 1994 taxation year and is not deductible by her in that year.
10. The Respondent agrees that the requirements of paragraph 60(b) of the Act have been met by the Appellant with respect to the payment of the $16,900 in the 1995 taxation year, except the requirement that the amount be payable on a periodic basis.
[3] As stated in the agreed facts, counsel for the Appellant now concedes that the amount of $7,700 is not deductible in 1994 as it was not paid during that year, but claims that it should be deductible in 1995 together with the other amount, $9,200, for a total amount claimed of $16,900.
[4] Counsel for the Appellant submits that the amount of $16,900 was a catch-up payment of arrears made by the Appellant to her former spouse pursuant to an order of a court and was paid as alimony or other allowance payable on a periodic basis for the maintenance of the children of the recipient.
[5] Counsel for the Respondent submits that the $16,900 payment does not represent arrears of amounts that were payable by the Appellant to her former spouse under an order of a court as the amount of money called for in the order of the Divisional Court with respect to the period from December 1, 1992 to the date of the order (January 26, 1995) did not become due and payable until the date of the order and was not payable as periodic payments but as a lump sum payment.
Analysis
[6] Paragraphs 60(b) and 60(c) of the Act read as follows:
60. There may be deducted in computing a taxpayer's income for a taxation year such of the following amounts as are applicable:
. . .
(b) an amount paid by the taxpayer in the year, pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written agreement, as alimony or other allowance payable on a periodic basis for the maintenance of the recipient thereof, children of the marriage, or both the recipient and children of the marriage, if he was living apart from, and was separated pursuant to a divorce, judicial separation or written separation agreement from, his spouse or former spouse to whom he was required to make the payment at the time the payment was made and throughout the remainder of the year;
(c) an amount paid by the taxpayer in the year, pursuant to an order of a competent tribunal, as an allowance payable on a periodic basis for the maintenance of the recipient thereof, children of the marriage, or both the recipient and children of the marriage, if he was living apart from his spouse or former spouse to whom he was required to make the payment at the time the payment was made and throughout the remainder of the year;
Section 60.1 reads in part as follows:
60.1(1) Where a decree, order, judgment or written agreement described in paragraph 60(b) or (c), or any variation thereof, provides for the periodic payment of an amount by a taxpayer
(a) to a person who is
(i) the taxpayer's spouse or former spouse . . .
the amount or any part thereof, when paid, shall be deemed for the purpose of paragraphs 60(b) and (c) to have been paid to and received by that person.
(2) For the purposes of paragraphs 60(b) and (c), the amount determined by the formula
A – B
where
A is the total of all amounts each of which is an amount (other than an amount to which paragraph 60(b) or (c) otherwise applies) paid by a taxpayer in a taxation year, under a decree, order or judgment of a competent tribunal or under a written agreement, in respect of an expense . . . incurred in the year or the preceding taxation year for maintenance of a person who is
(a) the taxpayer's spouse or former spouse, . . .
or for the maintenance of children in the person's custody or both the person and those children if, at the time the expense was incurred and throughout the remainder of the year, the taxpayer was living separate and apart from that person, and
B [not applicable]
shall, where the decree, order, judgment or written agreement, as the case may be, provides that this subsection and subsection 56.1(2) shall apply to any payment made thereunder, be deemed to be an amount paid by the taxpayer and received by that person as an allowance payable on a periodic basis.
(3) For the purposes of this section and section 60, where a decree, order or judgment of a competent tribunal or a written agreement made at any time in a taxation year provides that an amount paid before that time and in the year or the preceding taxation year is to be considered to have been paid and received thereunder, the amount shall be deemed to have been paid thereunder.
[7] The Respondent agrees that for the $16,900 to be deductible by the Appellant, the order of the Divisional Court must be deemed to have been made nunc pro tunc, or in other words be deemed retroactive. According to the Respondent, the order of the Divisional Court is not retroactive or nunc pro tunc because the court has not explicitly made it such. According to counsel for the Respondent, the Divisional Court could have clearly drafted its order so as to leave no question that the order was retroactive, but did not do so.
[8] The Endorsement of Divisional Court (the "Endorsement") dated January 26, 1995, filed as Exhibit 3 in the Joint Book of Documents, states in part the following:
This is an appeal by the father from the judgment of Cunningham J. who awarded child support to the father of $500 per month per child for two children, one being almost 11 and the other 6 1/2 years old.
Cunningham J. found that the father's monthly childcare expenses were $2,500. He found that, for the purposes of childcare responsibilities, each parent had an equal responsibility and ability to pay. Following the Paras formula, he apportioned the childcare expenses of the father equally between the parents to arrive at the sum of $1,250 each.
Cunningham J. also found that the mother had access costs in after tax dollars of about $10,000 per annum or $833 per month. He also found that the father would be subject to income tax on any support payment at the rate of approximately 50%.
Cunningham J. did not misapprehend the evidence before him. We accept is findings outlined above.
However we are of the view that Cunningham J. committed a material error when he concluded, based on those findings, that child support payable by the mother to the father should total $1,000 per month.
The total child care expenses of the parties amounts to $3,333 per month ($2,500 + $833). The mother's share of that on the Paras formula would be $1,667. The mother now spends $833 per month on access costs, which should be deducted from her $1,667 share to reflect that expenditure by her. The balance of $834 would be the amount, before income tax considerations are applied, which the mother should contribute to the father's child care expenses. That figure should be grossed up to take into account the effect of income taxes. For the father to receive net after tax the sum of $833 per month, the mother would have to pay to the father approximately $1,650 per month for child support, which is $825 per month per child.
We conclude that is the appropriate award which should have been made. Accordingly, the appeal is allowed. The award of Cunningham J. is set aside. Judgment is granted requiring the mother to pay child support to the father in the amount of $825 per month per child effective December 1, 1992.
And the Order of Divisional Court dated January 26, 1995, filed as Exhibit 4 in the Joint Book of Documents, states:
This Court orders that the award of Cunningham J. is set aside and judgment is granted requiring Linda LeGroulx to pay child support to David Caldwell in the amount of $825 per month per child effective December 1, 1992.
[9] It is clear from the Endorsement that the Appellant was ordered to pay an extra $650 per month for child support to her former spouse effective December 1, 1992 and that such amount was calculated to take into account the effect of income taxes. In other words, for the recipient to receive net after taxes the sum of $833 per month, the Appellant had to pay the recipient $1,650 per month. As the previous order of the Ontario Court (General Division), dated February 11, 1993, ordered the Appellant to pay the recipient $1,000 per month for child support, the Appellant had to pay her former spouse the difference of $650 per month for the previous years retroactive to December 1, 1992 in accordance with the terms of the order of the Divisional Court. The order dated January 26, 1995 has to be read in conjunction with the Endorsement.
[10] Rule 59.01 of the Ontario Rules of Civil Procedure provides that an order of a court is effective from the date on which it is made unless it provides otherwise.
[11] First, I find that the wording of the order states clearly enough that it is intended to apply retroactively. It may be read as follows: "judgment is granted (requiring the Appellant to pay child support to the recipient in the amount of $825 per month per child) effective December 1, 1992."
[12] Furthermore, in The Queen v. Larsson, 97 DTC 5425, a case which was heard in British Columbia, the Federal Court of Appeal made the following comments at page 5428:
While one must assume that a court order is effective from the date on which it is entered, it is equally reasonable to assume that when courts make orders, those orders are intended to be of some force or effect at the time they are made. In the case at bar, the fourth order specifically contemplates the nature of mortgage payments made since 1989 by the taxpayer. At the time the fourth order was made in 1993, though, the matrimonial home had been sold and no more mortgage payments would be made by the taxpayer. It is clear on these facts that if the fourth order were not intended to be of retroactive effect, it would be moot. This is at least an indicator of retroactivity, and may even defeat the presumption against retroactivity.
In my view, it would be perverse to interpret a court's ruling in such a way as to render it moot from its inception. In the case at bar, if the fourth order is not interpreted retroactively, it is of no force or effect from the day it was entered. In such a situation, I can see no other reasonable interpretation than to assume that the British Columbia Supreme Court intended the fourth order to have been made nunc pro tunc.
[13] In the present case, the tax considerations taken into account by the Divisional Court in increasing the child support payments to be made by the Appellant effective December 1, 1992, are certainly an indicator of retroactivity and, as in the Larsson case, may defeat the presumption against retroactivity. In such a situation, it is a reasonable interpretation in my view to assume that the Divisional Court intended its order to have been made nunc pro tunc.
Moreover, one of the definitions of nunc pro tunc given in the Dictionary of Canadian Law, second edition, reads as follows:
NUNC PRO TUNC. [L. now for then] 1. The order of a court that a proceeding be dated with an earlier date than the date it actually took place, or that the same effect be produced as if the proceeding had happened at an earlier date. (Emphasis added.)
In my view, this definition contemplates an interpretation such as that I have just given the order at issue.
[14] That being said, I am also of the opinion that the payment of $16,900 did represent arrears of periodic amounts that were payable by the Appellant to her former spouse under the order. As was said by the Federal Court of Appeal in The Queen v. Sills, 85 DTC 5096 at 5098, "so long as the agreement provides that the monies are payable on a periodic basis, the requirement of the subsection [60(b)] is met. The payments do not change in character merely because they are not made on time."
[15] I am therefore satisfied that the payment of $16,900 made by the Appellant did represent arrears of maintenance payments and that these were an allowance payable on a periodic basis under the 1995 Order (see also Soldera v. M.N.R., 91 DTC 987 (TCC)).
[16] Further, I do not accept the Respondent's submission that to give retroactive effect to the 1995 order would create a legal impossibility. In Aceti v. M.N.R., 92 DTC 1893, referred to by counsel for the Respondent, Rip, J.T.C.C. dealt with an agreement that was made between the parties after certain payments had already been made. There was no clear stipulation in the agreement that the previous payments were to be considered as having been paid and received under the agreement pursuant to subsection 60.1(3) of the Act. Furthermore, the agreement required the payor to make monthly maintenance payments beginning at a date prior to the agreement. Rip, J.T.C.C. said at page 1897:
The Agreement entered into on August 20, 1988 created a legal impossibility, the payment of a sum of money at a time prior to not only the execution of the Agreement but also the effective date of the Agreement, March 22, 1988. No amount can be said to be payable, nor is it payable, under an agreement before the making of the agreement. The amounts of money called for payment under an agreement with respect to periods prior to the agreement become due and payable under an agreement when the agreement is made, not as periodic payments with respect to periods prior to the agreement but as a lump sum payment. During the months of January, February, March and April no amount was capable of being paid under the Agreement because at the time Gravino was under no obligation under the Agreement to pay it; the amounts at those times were simply not payable and Aceti then could not enforce the payments.
[17] The situation here is clearly distinguishable as the Appellant had to comply with a court order setting aside an award of an existing previous order, and that order could be made retroactively in law. Indeed, paragraph 17(1)(a) of the Divorce Act provides that:
17. (1) A court of competent jurisdiction may make an order varying, rescinding or suspending, prospectively or retroactively,
(a) a support order or any provision thereof on application by either or both former spouses; or
. . .
[18] As was said by Kempo, J.T.C.C. as she then was, in T.B. Howes v. M.N.R. [1988] 2 C.T.C. 2328 at 2333:
The operative retrospectivity here arises both by virtue of the statutory power to make such orders as granted by the Divorce Act and the pronouncement to that effect in the variation order itself. Obviously the effect thereof does not, on its surface, accord with the fiscal imperative that an amount, to be deductible, must be paid "in the year, pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written agreement". Clearly the amounts that were paid by the appellant in 1982 and 1983 were not then paid "pursuant to", or paid to carry out the terms of, the separation agreement at that time. A fiction was created essentially from the 1986 retrospective variation order, which fiction was being relied upon by the appellant.
In my view the retrospectivity of variation orders made under the Divorce Act do impact on the phrases "pursuant to" in subsection 60(b) and "or any variation thereof" in section 60.1 of the Income Tax Act. To hold otherwise would be to ignore the very words used in the Income Tax Act itself.
[19] I therefore conclude that the amount of $16,900 was an amount paid by the Appellant in her 1995 taxation year, pursuant to an order of a competent tribunal as alimony or other allowance payable on a periodic basis for the maintenance of the children of the marriage. The amount of $16,900 was consequently deductible by the Appellant in computing her income for the 1995 taxation year pursuant to paragraphs 60(b) and 60(c) of the Act. (Section 60.1 is not applicable in the present case).
[20] The appeal from the 1994 assessment is dismissed and the appeal from the 1995 assessment is allowed on the basis that the entire amount of $16,900 is deductible in that year.
[21] The whole with costs in accordance with Tariff B of Schedule II of the Tax Court of Canada Rules (General Procedure).
Signed at Ottawa, Canada, this 24th day of December 1998.
"Lucie Lamarre"
J.T.C.C.