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Docket: 2003-1052(IT)I |
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BETWEEN: |
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CHARLES W. MILLER, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
____________________________________________________________________
Appeals heard on August 13, 2003, at Vancouver, British Columbia,
by the Honourable Justice M.A. Mogan |
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Appearances: |
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For the Appellant:
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The Appellant himself |
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Counsel for the Respondent: |
Selena Sit |
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JUDGMENT
The appeals from assessments of tax made under the Income Tax Act for the 1999, 2000 and 2001 taxation years are allowed, without costs, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the second Court Order of December 16, 1999 did not establish a "commencement day" within the meaning of subsection 56.1(4) of the Act.
Signed at Ottawa, Canada, this 15th day of October, 2003.
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"M.A. Mogan" |
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Citation: 2003TCC603 |
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Date: 20031015 |
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Docket: 2003-1052(IT)I |
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BETWEEN: |
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CHARLES W. MILLER, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
REASONS FOR JUDGMENT
Mogan J.
[1] The taxation years under appeal are 1999, 2000, and 2001. In each of those years, the Appellant made certain payments to his former wife for the support of their children. The deduction of those payments in computing income was disallowed by Canada Customs and Revenue Agency (CCRA) by Notices of Reassessment sent to the Appellant. The Appellant has appealed from those reassessments and has elected the Informal Procedure. The only issue is whether the amounts paid by the Appellant to his former wife as child support are deductible in computing the Appellant's income.
[2] The Appellant was married in 1973 to a woman named Lola Marie who adopted his family name and became Lola Marie Miller. There were three children born of the marriage: Heather in 1977, Erin in 1979 and Sarah in 1981. The Appellant and Lola Marie separated and were divorced in 1985. Around the time of the divorce, the Appellant was ordered to pay child support to his former wife at the rate of $200 per month per child for a gross amount of $600 per month. He made those payments from 1985 until 1996.
[3] In 1996, Lola Marie made an application to the court to change the amounts of child support. On November 15, 1996, Judge Holmes of the Supreme Court of British Columbia issued an order (Exhibit R-1) which stated in part:
THIS COURT DECLARES THAT HEATHER MAY MILLER, born June 30, 1977 is, at this time, a child of the marriage as defined in the Divorce Act, 1985.
THIS COURT ORDERS that the Petitioner shall pay to the Respondent for the support of the children of the marriage, namely HEATHER MAE MILLER, born June 30, 1977; ERIN FERN MILLER, born June 5, 1979 and SARAH LINDSEY MILLER, born June 1, 1981 (collectively the "Children") maintenance in the sum of $475.00 per month per child for a total of $1,425.00 per month commencing November 1, 1996 (the "Monthly Child Maintenance") and continuing monthly thereafter pending further order of this Court.
[4] The Appellant and Lola Marie were back in court on what apparently was a joint application in December 1999 before Judge MacKenzie. I say "apparently" because the order commences:
THE APPLICATIONS of the Plaintiff, CHARLES WESLEY MILLER, and the Defendant, LOLA MARIE MILLER, coming on for hearing before me at New Westminster, British Columbia on today's date ...
The operative part of Judge MacKenzie's order states:
THIS COURT ORDERS that the order of the Honourable Judge Holmes made November 15, 1996 is varied as follows:
a) by terminating child support payable by the Plaintiff to the Defendant for Heather Mae Miller, born June 30, 1977 effective October 5, 1999; and
b) the Plaintiff shall pay to the Defendant for the interim support of the children of the marriage, namely Erin Fern Miller, born June 5, 1979 and Sarah Lindsey Miller, born June 1, 1981 (collectively the "Children") the sum of $475.00 per month per child for a total of $950.00 per month commencing October 5, 1999 and continuing monthly thereafter pending further order of the court with the payments being made by the Plaintiff to the Defendant in the sum of $438.48 every two weeks thereafter.
[5] According to the evidence of the Appellant, he and his former wife have lived in accordance with Judge MacKenzie's order of December 16, 1999 (the "second order"). He has made the payments at the rate of $475 per month per child to his former wife since October 5, 1999 and throughout 2000 and 2001. The order of Madam Justice MacKenzie was entered as Exhibit R-2.
[6] In 2002, the question arose as to whether the second order changed the Appellant's right to deduct the child support payments he had been making since October 5, 1999. CCRA decided that it was a fresh order; and that there was a "commencement day" under the relevant legislation. If there was a commencement day under subsection 56.1(4) of the Income Tax Act, the payments for child support would no longer be deductible to the Appellant. I understand that CCRA gave effect to that decision in the reassessments which are under appeal disallowing the deduction of child support payments from and after October 5, 1999.
[7] The issue in this case is deceptively simple. Did the second order create a "commencement day" within the meaning of subsection 56.1(4)? The definitions in subsection 56.1(4) are incorporated into section 60 and 60.1 by subsection 60.1(4).
56.1(4) The definitions in this subsection apply in this section and section 56.
"commencement day" at any time of an agreement or order means
(a) where the agreement or order is made after April 1997, the day it is made; and
(b) where the agreement or order is made before May 1997, the day, if any, that is after April 1997 and is the earliest of
(i) the day specified as the commencement day of the agreement or order by the payer and recipient under the agreement or order in a joint election filed with the Minister in prescribed form and manner,
(ii) where the agreement or order is varied after April 1997 to change the child support amounts payable to the recipient, the day on which the first payment of the varied amount is required to be made,
(iii) where a subsequent agreement or order is made after April 1997, the effect of which is to change the total child support amounts payable to the recipient by the payer, the commencement day of the first such subsequent agreement or order, and
(iv) the day specified in the agreement or order, or any variation thereof, as the commencement day of the agreement or order for the purposes of this Act.
[8] There was a significant change to the relevant legislation which took effect on May 1, 1997. Associate Chief Judge Bowman of this Court set out a good description of that change in Kovarik v. The Queen, [2001] 2 C.T.C. 2503:
8 Under what I may describe as the old régime (pre May 1997) spouses making payments to separated or ex spouses for the support of children could deduct those payments and the recipient had to include them in income. Following the decision of the Supreme Court of Canada in Thibaudeau v. R., [1995] 2 S.C.R. 627, the legislation changed. So long as a pre May 1997 agreement remained unchanged the deduction/inclusion system under the old régime prevailed.
9 If a new agreement were entered into, or an old agreement was changed in a particular way, the deduction/inclusion régime ceased and only payments made up to the "commencement day", as defined, were deductible by the payor and includible by the payee.
That change between the old régime and the new régime depended upon whether there was a "commencement day" as defined above.
[9] In the definition of "commencement day", this appeal falls under paragraph (b) because the basic order was not made after April 1997 but on November 15, 1996 (Exhibit R-1). There are four alternatives under paragraph (b). I will consider the first and the last alternative because they are easy to eliminate. If the payor and the payee execute a joint election filed with the Minister in a prescribed form they can elect a commencement day under subparagraph (b)(i). The Appellant and Lola Marie did not execute a joint election. Under subparagraph (b)(iv), the agreement or order can specify a day as the commencement day for the purpose of the Income Tax Act. There is no commencement day specified in the second order. Subparagraphs (b)(i) and (b)(iv) do not apply.
[10] I am left with the two remaining subparagraphs (b)(ii) and (b)(iii):
(ii) where the agreement or order is varied after April 1997 to change the child support amounts payable to the recipient, the day on which the first payment of the varied amount is required to be made,
(iii) where a subsequent agreement or order is made after April 1997, the effect of which is to change the total child support amounts payable to the recipient by the payor, the commencement day of the first such subsequent agreement or order, ...
There is an obvious similarity between the provisions in (ii) and (iii) because (ii) states "to change the child support amounts" and (iii) states "to change the total child support amounts". Subparagraph (b)(ii) depends on an agreement or order being "varied" whereas subparagraph (b)(iii) depends on a subsequent agreement or order. In this appeal, we have what appears to be a variation because, in the second order, Madam Justice MacKenzie states:
THIS COURT ORDERS that the order of the Honourable Judge Holmes made November 15, 1996 is varied as follows: (emphasis added)
Assuming that the order of November 15, 1996 is only "varied", the Appellant is under subparagraph (b)(ii). The second order did not change the child support amounts payable per month per child. The terminology of the two orders is almost the same. The first order of November 1996 used the words "in the sum of $475 per month per child for a total of $1,425 per month". The second order stated "the sum of $475 per month per child for a total of $950 per month". It is perfectly obvious that, if one of the three children has dropped off as no longer a person in respect of whom child support is required, the aggregate amount is going to drop. But that is not what subparagraph (b)(ii) of the definition of "commencement day" is aimed at. Subparagraph (b)(ii) is aimed at whether the varied order will "change the child support amounts payable to the recipient".
[11] In my view, subparagraph (b)(ii) applies only if a prior agreement or order is varied to change the amount payable per child. In the second order, because Heather (the oldest child) had reached a certain age, or level of education, or had married, or moved out, or whatever, the Appellant was no longer required to pay $475 per month for her after October 5, 1999. He was, however, required by the second order to continue to pay the precise same amount for each of the two younger children that he was ordered to pay by the prior court order of November 15, 1996. As I read the two court orders of November 15, 1996 and December 16, 1999, there is no commencement day with respect to the Appellant and the payments he made to his former wife in 1999, 2000 and 2001. Because there is no commencement day, his entitlement to deduct the monthly payments continues as it was before December 16, 1999.
[12] Counsel for the Respondent brought to my attention the decision of Bowman A.C.J. in Kovarik v. The Queen,supra. I have already quoted above Judge Bowman's succinct summary of the old régime and the new régime. I must now consider the facts in that case. Mr. Kovarik and his wife ("JV") were divorced in December 1979. They had two sons: Garrett born in 1971 and Ray born in 1973. On January 15, 1990, Mr. Kovarik and JV entered into a written agreement which stated in part:
1. Effective January 1, 1990, Kovarik will pay to Velensky for the maintenance of Garrett George Kovarik who was born on the 6th day of September, 1971 and Ray Paul Kovarik who was born on the 26th day of March, 1973, the sum of $450.00 per month for each child, a total of $900.00 per month.
In 1998, the younger son received an MBA and became self-sufficient but the older son was a medical student and continued to need parental support. On February 12, 1998, Mr. Kovarik and JV entered into a new written agreement which provided in part:
AND WHEREAS the parties have agreed that child support for the said RAY PAUL KOVARIK may be discontinued effective the 1st of February, 1998.
AND WHEREAS the parties have mutually agreed that the existing child support agreement for the support of GARRETT GEORGE KOVARIK born on the 6th of September, 1971, be continued in the sum of $450.00 per month.
NOW THIS INDENTURE WITNESSETH and the parties hereby covenant and agree as follows:
1. The parties further mutually agree that child support for RAY PAUL KOVARIK born on the 26th of March, 1973 be cancelled and rescinded effective the 1st of February, 1998.
2. The parties further agree that the existing child support order continue insofar as GARRETT GEORGE KOVARIK is concerned until such time as he is no longer a child as defined under the Divorce Act.
[13] Judge Bowman dismissed Mr. Kovarik's appeal holding that there was a "commencement day" as a result of the February 12, 1998 agreement, and stating at page 2510:
16 The liability for one child - the older one - remains admittedly the same but the total changes.
17 Counsel contends that the 1998 agreement was unnecessary because the obligation to pay support for Ray Paul Kovarik would have expired upon his moving out. I do not think that the Divorce Act supports such an automatic cessation. Without the agreement of the appellant's ex spouse he would have needed a court order or some similar sanction for a variation of the 1990 agreement and this would have brought him into the definition of "commencement day" one way or another.
In the Kovarik case, the agreement of February 12, 1998 was "a subsequent agreement" and therefore fell within subparagraph (b)(iii) of the definition of "commencement day". Judge Bowman concluded that he was bound by the plain words of subparagraph (b)(iii): "to change the total child support amounts payable to the recipient by the payor" even though the amount payable per child did not change.
[14] I am not inclined to interpret subparagraph (b)(ii) of the definition to find a commencement day only because one of two or more children became ineligible for child support payments. In my opinion, a commencement day would be established after April 1997 under subparagraph (b)(ii) only if there were a change in the support amount payable per child. When there are two or more children all eligible for child support payments, and when one child becomes ineligible for child support because of age, educational achievement, marriage, moving out, etc., the gross amount payable to the recipient by the payor will, of course, be reduced but such reduction is not, in my view, a "change" in the child support amounts for the purposes of subparagraph (b)(ii).
[15] Returning to the facts in this appeal, the second order varied the prior order of Judge Holmes only by terminating the child support payable for Heather. Otherwise, the second order confirmed the former child support amount ($475 per month) as being still payable for the two younger children (Erin and Sarah). On these facts, I conclude that there was no "commencement day" established by the second order of December 16, 1999. The appeals for the years 1999, 2000 and 2001 are allowed, without costs.
Signed at Ottawa, Canada, this 15th day of October, 2003.
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"M.A. Mogan" |
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CITATION: |
2003TCC603 |
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COURT FILE NO.: |
2003-1052(IT)I |
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STYLE OF CAUSE: |
Charles W. Miller and Her Majesty the Queen |
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PLACE OF HEARING: |
Vancouver, British Columbia |
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DATE OF HEARING: |
August 13, 2003 |
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REASONS FOR JUDGMENT BY: |
The Honourable Justice M.A. Mogan |
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DATE OF JUDGMENT: |
October 15, 2003 |
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APPEARANCES: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
Selena Sit |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
N/A |
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Firm: |
N/A |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |