Date: 19980514
Docket: 97-3534-IT-I
BETWEEN:
ROBERTO MIGUELEZ,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Lamarre, J.T.C.C.
[1] The appellant is appealing under the informal procedure from assessments made on February 27, 1997, by the Minister of National Revenue ("the Minister") for the 1993, 1994 and 1995 taxation years. In computing his income for each of those years, the appellant deducted $18,424, $14,400 and $4,800 respectively as alimony or maintenance. In making the assessments, the Minister reduced the amount of alimony or maintenance for the 1993 taxation year from $18,424 to $2,367, thus disallowing $16,057, and disallowed in full the deductions for the 1994 and 1995 taxation years in full. In the Reply to the Notice of Appeal, the respondent stated that she is now contesting only the deduction of $6,457 in 1993, $4,800 in 1994 and $4,800 in 1995, amounts that were paid directly to the appellant's child, Maia Miguelez. The respondent argued that those amounts were not paid as alimony or maintenance pursuant to subsections 56(12) and 60.1(1) and (2) and paragraphs 60(b) and (c) of the Income Tax Act ("the Act").
[2] The facts on which the Minister relied in making the assessments, in so far as they relate to the amounts still in dispute, are as follows:
[TRANSLATION]
(a) the appellant and Beatriz C. Miguelez ("the former spouse") have lived separate and apart continuously since August 8, 1988;
(b) the appellant and the former spouse entered into a separation agreement ("the separation agreement") on April 19, 1991;
(c) the appellant and the former spouse have two children: Alain Miguelez, an adult at the time of the separation, and Maia Miguelez ("the child"), who was born on July 26, 1972;
(d) in computing his income for the 1993, 1994 and 1995 taxation years, the appellant deducted the amounts described below as alimony or maintenance:
Taxation year
|
Description |
1993 |
1994 |
1995 |
|
1. Amounts paid directly to the child |
|||
|
(a) support for the maintenance of the child |
$6,457 |
$4,800 |
$4,800 |
|
2. Amounts paid to the former spouse |
|||
|
(a) as alimony to compensate for the difference in value between the two properties transferred |
$9,600 |
$9,600 |
|
|
(b) support for the maintenance of the child |
$2,467 |
||
|
TOTAL: |
$18,424 |
$14,400 |
$4,800 |
(e) article 3.1 of the separation agreement provides that the appellant and the former spouse have joint custody of the child, although the child's principal residence is with the former spouse, who has day-to-day custody and is responsible for the day-to-day supervision of the child;
(f) article 4.1 of the separation agreement provides that as of April 1, 1991, the appellant promised to pay the former spouse $750 a month in support for the maintenance of the child;
(g) according to article 4.4 of the separation agreement, article 4.1 of the agreement ceases to apply in either of the following cases:
(a) the child's 21st birthday;
(b) the child's marriage;
(h) on or about July 5, 1992, the appellant and the former spouse signed an agreement ("the second agreement") whereby the appellant stopped paying the former spouse the support described in article 4 of the separation agreement and undertook to pay it directly to the child;
(i) the child turned 21 on July 26, 1993;
(j) on or about October 25, 1993, the appellant and the former spouse signed a schedule to the separation agreement ("the schedule") in order to continue making support payments to the child;
(k) according to article 1.1 of the schedule, the appellant undertook to pay the child $400 a month in support;
(l) the $6,457, $4,800 and $4,800 deducted as alimony or maintenance for the 1993, 1994 and 1995 taxation years respectively, as detailed in subparagraph 16(d) above:
(i) were not paid to the former spouse, who had no discretion as to the use of those amounts;
(ii) were paid directly to the child; and
(iii) are not an "allowance" within the meaning of subsection 56(12) of the Act;
(m) the separation agreement, the second agreement and the schedule do not provide that amounts may be paid to persons other than the former spouse in accordance with subsections 60.1(1) and 56.1(2) of the Act, for the purposes of paragraphs 60(b) and (c) of the Act, and thus be considered to have been paid by the appellant and received by the former spouse as alimony or other allowance payable on a periodic basis;
(n) during the taxation years at issue, the child was not a child in the former spouse's custody for the purposes of subsection 60.1(1) of the Act;
(o) the appellant cannot deduct the $6,457, $4,800 and $4,800 as alimony or maintenance in computing his income for the 1993, 1994 and 1995 taxation years respectively;
. . .
(t) the appellant's income tax returns for the 1993, 1994 and 1995 taxation years had to be filed with the Minister by April 30, 1994, April 30, 1995, and April 30, 1996, respectively, at the latest ("the balance due dates");
(u)* the tax payable by the appellant for the 1993, 1994 and 1995 taxation years that was unpaid on the balance due dates was $8,405.76, $7,524.69 and $2,552.90 respectively ("the excess amount"); and
(v)* for the 1993, 1994 and 1995 taxation years, the interest on the excess amount, calculated at the prescribed rate for the period from the balance due dates to the date of the reassessments on February 27, 1997, was $2,585.26, $1,550.44 and $197.11 respectively.
[3] The appellant admitted subparagraphs (a) to (k) set out above.
[4] He claimed that he agreed to sign the agreement of July 5, 1992, at the request of Beatriz C. Miguelez. In that agreement, the appellant agreed to give the cheques for Maia's support pursuant to the separation agreement of April 19, 1991 ($750 a month according to Exhibit A-2) directly to Maia. The amounts in question had previously been paid to Beatriz Miguelez.
[5] The agreement of July 5, 1992 (Exhibit A-1) was drafted by two mediators (Gisèle Morin-Labatut and Jean-Michel Labatut) and signed by the appellant and his former spouse, Beatriz Miguelez. It reads as follows:
[TRANSLATION]
After Maia returned to live in her mother's home on June 30, Beatriz asked Roberto to make out the cheques for Maia's support to Maia rather than her. Roberto's response was that he wanted us to read over article 4 of the separation agreement of April 19, 1991, which relates to the support, and state our opinion on this proposal.
In our view, Beatriz's proposal is logical, since the full amount in question would be available for Maia's maintenance rather than being reduced by the amount of tax that Beatriz would have to pay if the income were considered hers. It seems fair to us, since it is in no way prejudicial to Roberto. Lastly, we believe that it is in keeping with the spirit of the separation agreement, since the amount in question is meant to pay for Maia's expenses, not Beatriz's.
This arrangement would suit Beatriz without costing Roberto any more and without penalizing either party as far as income tax is concerned.
If you agree on this approach, we recommend that you sign this agreement (a copy of which we are sending to each of you) and then the other party's copy. Your signature will mean that you acknowledge that the cheques made out by Roberto to Maia are the child support described in article 4 of the separation agreement of April 19, 1991. It will also mean that if Maia decided to live with her father during the period when it has been agreed that support will be provided for her, Beatriz would make out the cheques for Maia's support to Maia if that was what Roberto wished.
[6] The appellant added the following below his signature:
[TRANSLATION]
Provided that Beatriz Miguelez accepts full responsibility for any tax consequences for Maia that may result from this agreement.
[7] On October 25, 1993, the appellant and his former spouse signed a new agreement, entitled [TRANSLATION] "Schedule to the separation agreement entered into on April 19, 1991", whereby they both agreed in the following terms to continue paying support to Maia, who had turned 21 on July 26, 1993:
[TRANSLATION]
Pursuant to article 4.4 of this separation agreement, articles 4.1, 4.2 and 4.3, regarding support for the child Maia Miguelez, cease to apply (case (a)), and the spouses have decided to continue paying support and other benefits to the child, Maia Miguelez, in accordance with the following conditions:
1.1 Roberto undertakes to pay the child $400 (four hundred dollars) a month in support.
1.2 Roberto also undertakes to bear the financial consequences for his income of the child's registration fees at the University of Ottawa, as determined by that university.
1.3 Roberto also undertakes to maintain, for the child's benefit, the health insurance policy chosen by the University of Ottawa, in accordance with the conditions defined by his employer and applicable to the child.
1.4 Beatriz undertakes to pay the child $400 (four hundred dollars) a month in support.
1.5 Articles 1.1 and 1.4 above shall cease to apply in any of the following cases:
(a) if the child ceases to be a full-time student;
(b) if the child is able to support herself through a grant or any other earnings;
(c) if either spouse decides to terminate this agreement, in which case the child shall be notified of the decision made by either of them at least 30 days in advance.
[8] When he testified, the appellant acknowledged that Maia went to live in Argentina from September 15 to December 21, 1993, and from January 15 to August 15, 1994. He said that she met her future husband there and then returned with him to Canada. They lived with Maia's mother for a while and then with the appellant. Maia was married in 1996.
Analysis
[9] In the case at bar, the alimony or maintenance will be deductible from the income of the supporting person (the appellant) if the conditions set out in paragraph 60(b) or (c) and subsections 56(12) and 60.1(1) and (2) are met. Those provisions read as follows:
Section 56: Amounts to be included in income for year.
(12) Definition of "allowance". Subject to subsections 56.1(2) and 60.1(2), for the purposes of paragraphs (1)(b), (c) and (c.1) (in this subsection referred to as the "former paragraphs") and 60(b), (c) and (c.1) (in this subsection referred to as the "latter paragraphs"), "allowance" does not include any amount that is received by a person, referred to in the former paragraphs as "the taxpayer" and in the latter paragraphs as "the recipient", unless that person has discretion as to the use of the amount.
Section 60: Other deductions.
There may be deducted in computing a taxpayer's income for a taxation year such of the following amounts as are applicable:
(b) Alimony payments — an amount paid by the taxpayer in the year as alimony or other allowance payable on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and the children, if the taxpayer, because of the breakdown of the taxpayer's marriage, was living separate and apart from the spouse or former spouse to whom the taxpayer was required to make the payment at the time the payment was made and throughout the remainder of the year and the amount was paid under a decree, order or judgment of a competent tribunal or under a written agreement;
(c) Maintenance — an amount paid by the taxpayer in the year as an allowance payable on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and the children, if
(i) at the time the amount was paid and throughout the remainder of the year the taxpayer was living separate and apart from the recipient,
(ii) the taxpayer is the natural parent of a child of the recipient, and
(iii) the amount was received under an order made by a competent tribunal in accordance with the laws of a province;
Section 60.1: Maintenance payments.
(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, or
(ii) where the amount is paid under an order made by a competent tribunal in accordance with the laws of a province, an individual of the opposite sex who is the natural parent of a child of the taxpayer, or
(b) for the benefit of the person, children in the custody of the person or both the person and those children,
the amount or any part thereof, when paid, shall be deemed for the purposes of paragraphs 60(b) and (c) to have been paid to and received by that person.
(2) Agreement. 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 (other than an expenditure in respect of a self-contained domestic establishment in which the taxpayer resides or an expenditure for the acquisition of tangible property that is not an expenditure on account of a medical or education expense or in respect of the acquisition, improvement or maintenance of a self-contained domestic establishment in which the person described in paragraph (a) or (b) resides) 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
(b) where the amount is paid under an order made by a competent tribunal in accordance with the laws of a province, an individual of the opposite sex who is the natural parent of a child of the taxpayer,
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 is the amount, if any, by which
(a) the total of all amounts each of which is an amount included in the total determined for A in respect of the acquisition or improvement of a self-contained domestic establishment in which that person resides, including any payment of principal or interest in respect of a loan made or indebtedness incurred to finance, in any manner whatever, such acquisition or improvement
exceeds
(b) the total of all amounts each of which is an amount equal to 1/5 of the original principal amount of a loan or indebtedness described in paragraph (a),
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.
[10] If the support payments are not made to the supporting person's former spouse, as in this case, they will be deductible by the appellant if two conditions are met. First, the payments must be made for the benefit of the former spouse or children in the former spouse's custody. Second, the written agreement providing for the payment of the amounts must explicitly state that the expenses incurred by the appellant for the maintenance of his child in his former spouse's custody will be deemed to be payments made as an allowance payable on a periodic basis and received by the former spouse. This means that in the written agreement, the former spouse must agree to include the amounts so paid to another person in his or her income and the supporting person must agree to deduct them in computing his or her income.
[11] In my view, the appellant in this case does not meet either of these conditions. First of all, it is not at all clear from the agreement of July 5, 1992, that Beatriz Miguelez agreed to include the amounts paid to her daughter Maia in her own income. The following passage from that agreement leaves room for doubt about the true intention of each party on signing the agreement:
[TRANSLATION]
In our view, Beatriz's proposal is logical, since the full amount in question would be available for Maia's maintenance rather than being reduced by the amount of tax that Beatriz would have to pay if the income were considered hers.
No clear reference is made to this point in the schedule to the separation agreement dated October 25, 1993.
[12] According to the appellant's Notice of Appeal, it was actually Maia who included the amounts in her income. It therefore seems to me that there has been some confusion about the application of sections 56.1 and 60.1 of the Act. In my view, that agreement does not have the effect of deeming the payment to Maia of $750 a month under the separation agreement and $400 a month under the schedule to the separation agreement to be an allowance payable on a periodic basis and received by Beatriz Miguelez.
[13] Moreover, the appellant paid that money to his daughter Maia, who was an adult during the years at issue. The separation agreement provides that it is governed by the laws of Ontario. The obligation of parents to support a dependent child is set out in the Family Law Act (R.S.O., c. F.3). Sections 29 and 31 of Part III of that Act provide as follows:
29. In this Part,
"dependant" means a person to whom another has an obligation to provide support under this Part; ("personne à charge")
"spouse" means a spouse as defined in subsection 1 (1), and in addition includes either of a man and woman who are not married to each other and have cohabited,
(a) continuously for a period of not less than three years, or
(b) in a relationship of some permanence, if they are the natural or adoptive parents of a child. ("conjoint") 1986, c. 4, s. 29.
31.(1) Every parent has an obligation to provide support, in accordance with need, for his or her unmarried child who is a minor or is enrolled in a full time program of education, to the extent that the parent is capable of doing so.
(2) The obligation under subsection (1) does not extend to a child who is sixteen years of age or older and has withdrawn from parental control.
[14] The entitlement to child custody is set out in Part III of the Children's Law Reform Act (R.S.O., c. C.12). Subsections 18(2) and 20(1), (2), (4), (6) and (7), section 21 and subsection 22(2), which are found in Part III of the Act, provide as follows:
18. (2) A reference in this Part to a child is a reference to the child while a minor. 1982, c. 20, s. 1, part.
20. (1) Except as otherwise provided in this Part, the father and the mother of a child are equally entitled to custody of the child.
(2) A person entitled to custody of a child has the rights and responsibilities of a parent in respect of the person of the child and must exercise those rights and responsibilities in the best interests of the child.
. . .
(4) Where the parents of a child live separate and apart and the child lives with one of them with the consent, implied consent or acquiescence of the other of them, the right of the other to exercise the entitlement of custody and the incidents of custody, but not the entitlement to access, is suspended until a separation agreement or order otherwise provides.
(6) The entitlement to custody of or access to a child terminates on the marriage of the child.
(7) Any entitlement to custody or access or incidents of custody under this section is subject to alteration by an order of the court or by separation agreement. 1982, c. 20, s. 1, part.
21. A parent of a child or any other person may apply to a court for an order respecting custody of or access to the child or determining any aspect of the incidents of custody of the child. 1982. c. 20, s. 1, part.
22. (2) A child is habitually resident in the place where he or she resided,
(a) with both parents;
(b) where the parents are living separate and apart, with one parent under a separation agreement or with the consent, implied consent or acquiescence of the other or under a court order; or
(c) with a person other than a parent on a permanent basis for a significant period of time,
whichever last occurred.
[15] Section 1 of the Age of Majority and Accountability Act (R.S.O., c. A.7) provides that a person ceases to be a minor on attaining the age of 18 years, which is the age of majority.
[16] In The Queen v. Curzi, 94 DTC 6417, Noël J. of the Federal Court—Trial Division drew a clear distinction between a "child of the marriage" and a child in the custody of a parent. The following passage is worth noting (p. 6421):
Some aspects of the definition of the expression "child of the marriage" set out in the Divorce Act [R.S.C. 1985, c. 3 (2nd Supp.)] evoke a concept similar to the one contemplated by the support obligation set out in the Civil Code: a child may be considered to be under the charge of his or her parents for so long as he or she cannot provide for his or her own needs, regardless of age.
The concept of "garde" or "custody" evokes quite another thing. In a divorce, either of the former spouses may be granted custody of the children. A custody order confers a right on the parent who is granted custody. It is the parent who has custody of the children who has ultimate responsibility for the upbringing of the children and for exercising parental authority. On the other hand, a custody order carries with it all of the duties attaching to custody.
However, the right of custody is not perpetual and a custody order could not be set up against an emancipated adult child who voluntarily chooses to withdraw from parental authority. The fact that a child may, in such circumstances, still be a child of the marriage because, having left the parental home, he or she cannot provide for his or her own needs does not mean that the child remains in the custody of the parent whom he or she has chosen to leave. It is a prerequisite to the concept of custody that there be parental authority, which cannot be exercised over an emancipated adult child who chooses to withdraw from that authority. . . .
In my view, the purpose of subsection 60.1(1) is to allow the deduction of amounts paid for the benefit of a child as long as the child is still in the custody of the former spouse or the former spouse remains under the duty of care which attaches to custody. When a child is emancipated and leaves the custody of the spouse, the problem addressed by Parliament in allowing the deduction of amounts paid for the benefit of the child ceases to exist: from that point on, the former spouse no longer has a duty of care deriving from his or her right of custody, and the support can no longer be considered to be owing or paid on account of that duty.
[17] Although Curzi was governed by the laws of Quebec, the Ontario legislative provisions are to the same effect. The obligation set out in section 31 of the Family Law Act to provide support to an unmarried child enrolled in a full-time program of education is the obligation that applies to a dependant. Furthermore, the obligation of parents to provide support does not extend to a child who is 16 years of age or older and has withdrawn from parental control.
[18] It is plain from the Children's Law Reform Act that the entitlement to custody can relate only to a minor child. In the case at bar, and according to the evidence I have before me, it seems clear to me that Maia, who turned 21 on July 26, 1993, withdrew from parental control by leaving the family home of her own accord. (The agreement of July 5, 1992, refers to the fact that Maia left her mother's home prior to June 30, 1992. She apparently then went back to living with her mother until she left the family home again in 1993 to go to Argentina.) In addition, once she started receiving support directly from her father, she had full authority to dispose of it, since she was an adult. Under the Ontario legislation, the former spouse (Beatriz Miguelez) could not have enforced a custody order against her adult daughter.
[19] I therefore conclude that Maia was not in her mother's custody during the years at issue and that section 60.1 therefore does not have the effect of deeming the amounts she received from the appellant to have been received by her mother. This means that those amounts are not deductible under paragraphs 60(b) and (c) of the Act.
[20] The appeals are therefore allowed for the 1993 and 1994 taxation years on the basis that the appellant can deduct only the amounts paid to the former spouse during each of those years for which the respondent consented to judgment in the Reply to the Notice of Appeal. The amounts paid directly to Maia Miguelez ($6,457 in 1993 and $4,800 in 1994) are not deductible from the appellant's income for each of those years.
[21] The appeal for the 1995 taxation year is dismissed on the ground that the $4,800 paid directly to Maia Miguelez was not deductible from the appellant's income for that year.
Signed at Ottawa, Canada, this 14th day of May 1998.
"Lucie Lamarre"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 15th day of December 1998.
Kathryn Barnard, Revisor
* The tax and interest specified must be adjusted so that they reflect only the amounts still in dispute.