Date: 20010810
Docket: 96-1998-IT-I
BETWEEN:
DIANE MARCIL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
(delivered orally from the benchon February 10, 2000, at Montréal, Quebec,
and amended for greater clarity)
Archambault, J.T.C.C.
[1] Diane Marcil is challenging assessments made by the Minister of National Revenue (Minister) for the 1991 and 1992 taxation years. In Ms. Marcil's income, the Minister included maintenance payments of $6,000 for 1991 and $10,051 for 1992 that had been made to her two children. Ms. Marcil's position is that the assessments are wrong because the amounts in question should not be included in her income since she did not receive them. There is no dispute concerning the actual amounts set out in the assessments.
Facts
[2] At the start of the hearing, the following facts stated in the Reply to the Notice of Appeal were admitted by Ms. Marcil's agent:
[TRANSLATION]
18. In making the assessments at issue, the Minister assumed the following facts, inter alia:
(a) The appellant married Claude Berardelli in 1973. They had two children, the first in 1977 and the second in 1979.
(b) In 1987, the appellant instituted divorce proceedings.
(d) On June 27, 1991, the Superior Court of Quebec rendered judgment granting the divorce and formalizing a consent regarding corollary relief signed the same day, which read as follows:
5. As of the signature of this agreement, the respondent shall pay, for the sole benefit of the two (2) children, MARTIN BERARDELLI AND ALEXANDRE BERARDELLI, five hundred dollars ($500.00) a month maintenance for each child, such payment to be made by cheque made out to each of them dated the 1st of each month, starting on July 1, 1991;
(f) The appellant's former spouse defaulted on several maintenance payments, and it was the appellant who then took steps to have the amounts collected by Quebec's collector of support.
[3] Ms. Marcil testified at the hearing, and the evidence shows that the children of the marriage were minors during the relevant years and did not intervene in the consent regarding corollary relief of June 27, 1991. Certain cheques written by Ms. Marcil's former spouse and payable to Martin and Alexandre were filed as exhibits. Some of them had been endorsed by the children and deposited in an account opened in their name: [TRANSLATION] "Alexandre and Martin in trust". The people authorized to write cheques on that account were the two children and their mother. Ms. Marcil also confirmed that her two children had an automated teller card giving them access to the money paid to them by their father.
[4] Ms. Marcil admitted as well that she exercised parental control over her children with regard to the use made of the money deposited in their account. However, she acknowledged that she sometimes had to negotiate with them concerning the use of the money, which was supposed to be mainly for school activities and for buying school lunches, books and clothing.
[5] Ms. Marcil further stated that the $500 that each child received from his father was not enough to meet all their needs. She estimated that it cost about $1,500 a month to meet their needs.
Analysis
[6] Paragraph 56(1)(b) of the Income Tax Act (Act) read as follows in 1991 and 1992:
56(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,
(b) any amount received 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 the recipient was living apart from, and was separated pursuant to a divorce, judicial separation or written separation agreement from, the spouse or former spouse required to make the payment at the time the payment was received and throughout the reminder of the year.
[Emphasis added.]
[7] The first issue to be decided is therefore whether the amounts included by the Minister meet the conditions set out in that paragraph for being taxable. The evidence shows that the amounts were received not by Ms. Marcil but rather by her children. They were paid by the father pursuant to an order by the Superior Court. The money belonged to the children, and the fact that Ms. Marcil may have exercised parental authority over her children as regards the use of the money does not mean that, for the purposes of the Act, the money must be considered to have been received by her.
[8] In her argument to the Court in support of her position, counsel for the respondent focused mainly on the application of subsection 56.1(1) of the Act, which states the following:
56.1(1) Maintenance.
(1) Where, after May 6, 1974, a decree, order, judgment or written agreement described in paragraph 56(1)(b), (c) or (c.1), or any variation thereof, has been made providing for the periodic payment of an amount
(a) to a taxpayer by a person who is
(i) the taxpayer's spouse or former spouse, or
(ii) where the amount is paid pursuant to an order made by a competent tribunal after February 10, 1988 in accordance with the laws of a province, an individual of the opposite sex who
(A) before the date of the order cohabited with the taxpayer in a conjugal relationship, or
(B) is the natural parent of a child of the taxpayer, or
(b) for the benefit of the taxpayer, children in the custody of the taxpayer or both the taxpayer and those children,
the amount or any part thereof, when paid, shall be deemed, for the purposes of paragraphs 56(1)(b), (c) and (c.1), to have been paid to and received by the taxpayer.
[9] Counsel for the respondent filed several court decisions dealing with the application of section 56.1. They show that different approaches have been taken. One of them is Judge Beaubier's approach in Kirchner v. Canada, [1992] T.C.J. No. 571. In that case, the taxpayer had made maintenance payments directly to his daughter, a university student. After quoting the opening words of subsection 60.1(1), Judge Beaubier stated the following at pages 2-3:
It is apparent that the opening words of subsection 60.1(1) govern what follows in the subsection. They require that a decree, order, judgment or written agreement must be that described in paragraphs 60(b), (c), or (c.1). All of these paragraphs refer to the payment in question being made to a payee who is a person other than a child of the taxpayer.
In the instant case the Appellant wishes to deduct payments made directly to a child of the taxpayer under the authority of subsection 60.1(1). The introductory words of the subsection do not give the taxpayer such a right.
[10] In none of the decisions submitted to me was Judge Beaubier's approach adopted, but it was not commented on disapprovingly either. In some of the decisions, it was assumed that section 60.1 could apply in such circumstances, but a distinction was then made between cases in which the child was in the mother's custody and cases in which the mother no longer had custody of the child. For example, this was the approach taken by my colleague Judge Lamarre Proulx in Greg Guardo v. M.N.R., 89-1660(IT)I, and by Pinard J. of the Trial Division of the Federal Court of Canada in the same case, 99 DTC 5150.
[11] The approach taken by Judge Beaubier in Kirchner, supra, strikes me as correct. It seems to me that it is in keeping with the goal being pursued by Parliament when it enacted section 56.1 in 1974, namely to ensure that payments made to third parties for the benefit of the spouse or the spouse's children would be deemed to have been received by the spouse for the purposes of paragraph 56(1)(b). That goal is stated explicitly in the technical notes accompanying the 1982 and 1992 amendments. In David M. Sherman's Income Tax Act, Department of Finance Technical Notes, 6th edition (Carswell), updated to September 1994, the following passage concerning the 1982 amendments may be found at pages 314-15:
Section 56.1 treats certain alimony and maintenance payments made to third parties for the benefit of a taxpayer (or children in the custody of the taxpayer) as having been received by the taxpayer.
Similar wording is found in the technical note concerning the June 1992 amendments:
Section 56.1 treats certain alimony and maintenance payments made to third parties for the benefit of an individual who is a taxpayer's spouse, former spouse, common-law spouse or a person who is a parent of a taxpayer's child (or for the benefit of children in the custody of such an individual) . . . .
[12] It can be seen from those technical notes that section 56.1 was directed at payments made to third parties for the benefit of the spouse and children. The purpose was not to tax in the spouse's hands amounts that might be paid directly to the spouse's children. If the intention had been for such payments to be covered, this could have been clearly stated in section 56.1. In my view, Parliament never intended section 56.1 to apply to them. As I see it, the interpretation of section 56.1 that is most consistent with Parliament's intention is that the section must not be applied to amounts paid directly to children, whether minor or adult.
[13] During her argument, counsel for the respondent asked: [translation] "But then what would be the point of section 56.1 if payments made to children were excluded and only payments made to third parties were included?" I would like to refer by way of example to a decision in which section 56.1 was given its full effect. It is the decision rendered by Judge Lamarre Proulx in Perrie v. Canada, [1999] T.C.J. No. 610. There, $1,550 a month in alimony was payable by the appellant as follows: (1) by withholding from that $1,550 every month the amounts needed to pay certain expenses himself, including the mortgage payments on the matrimonial home and the property taxes; and (2) by giving his former spouse in advance, on the first of each month, any balance not otherwise payable of the amount of $1,550. Judge Lamarre Proulx concluded that subsection 60.1(1) applied in that situation.
[14] For these reasons, Ms. Marcil's appeal is allowed with costs and the assessments for 1991 and 1992 are referred back to the Minister for reconsideration and reassessment on the basis that the amounts paid to Ms. Marcil's two children must be excluded from her income.
Signed at Ottawa, Canada, this 10th day of August 2001.
"Pierre Archambault"
J.T.C.C.
Translation certified true on this 8th day of November 2001.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
96-1998(IT)I
BETWEEN:
DIANE MARCIL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on February 7, 2000, and judgment delivered orally
on February 10, 2000, at Montréal, Quebec, by
the Honourable Judge Pierre Archambault
Appearances
Agent for the Appellant: Jean-Michel Prieur
Counsel for the Respondent: Suzanne Morin
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1991 and 1992 taxation years are allowed, with costs, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the amounts paid to Ms. Marcil's two children must be excluded from her income.
Signed at Ottawa, Canada, this 16th day of February 2000.
|
"Pierre Archambault" |
J.T.C.C.
Translation certified true
on this 8th day of November 2001.
Erich Klein, Revisor