|
Docket: 2002-4572(IT)I |
|
BETWEEN: |
|
BRENDA MCNEIL, |
|
Appellant, |
|
and |
|
|
|
HER MAJESTY THE QUEEN, |
|
Respondent. |
____________________________________________________________________
Appeal heard and judgment rendered orally from the bench on
April 28, 2003 at Vancouver, British Columbia
|
Before: The Honourable Justice J.E. Hershfield |
|
|
|
|
|
Appearances: |
|
|
|
|
|
For the Appellant: |
The Appellant herself |
|
|
|
|
Counsel for the Respondent: |
Amy Francis |
____________________________________________________________________
AMENDED JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 2000 taxation years is allowed, with costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
This Judgment is issued in substitution for the Judgment dated May 16, 2003. The Reasons for Judgment attached remains the same.
Signed at Ottawa, Canada, this 30th day of October 2003.
|
"J.E. Hershfield" |
Hershfield, J.
|
Citation: 2003TCC326 |
|
Date: 20030516 |
|
Docket: 2002-4572(IT)I |
|
BETWEEN: |
|
BRENDA MCNEIL, |
|
Appellant, |
|
and |
|
|
|
HER MAJESTY THE QUEEN, |
|
Respondent. |
REASONS FOR JUDGMENT
(Edited from transcript of Reasons delivered
orally at Vancouver, British Columbia on April 28, 2003.)
Hershfield, J.T.C.C.
[1] This is an appeal of the taxpayer's 2000 taxation year, for which the Minister included child support and maintenance payments in the amount of $48,832.00. There is no dispute that this amount was received in the year 2000 and that it was paid pursuant to one or more orders.
[2] The Appellant, based on her testimony, accepts that the amount of $41,132.10 was received as a result of garnishment proceedings against Lottery Canada after the Appellant's former spouse had won a lottery. I am satisfied that this payment received on February 10, 2000 represents the amounts shown on page 2 of Exhibit A-5, totaling arrears of $39,279.44 as at September 24, 1999, plus $700.00 per month thereafter up to and including January 15, 2000, plus interest, less payments received after September 24, 1999 and up to February 9, 2000. The balance of the amounts in issue in 2000 ($48,832.00-$41,132.00) are monthly payments received in 2000 after February 10 also paid pursuant to one or more orders.
[3] While I have been shown four orders, two must be examined. The first of the four is an interim order for one month in 1994 and is not relevant. The second of the four (the "Second Order") is an interim order in place until further order and is one of the two relevant orders. It is the Order of Master Donaldson of the Supreme Court of British Columbia dated January 27, 1995. I will quote from the third paragraph of this order as follows:
This Court Further Orders that the Respondent shall pay to the Petitioner for the benefit of the Children and the Petitioner, interim maintenance in the amount of $700.00 per month, commencing January 15, 1995, and continuing on the 15th day of each and every month thereafter, until settlement of this matter or further Order of the Court.
The third order is dated June 26, 1998 (the "Third Order"). It is also a relevant order. It is the divorce order and, as well, deals with custody of children and child and spousal support. It declares the amount in arrears of support payments under the Second Order at $27,065.00 as at April 21, 1998 and orders that the Appellant's former spouse shall pay the Appellant such sum "in satisfaction of the said arrears". As to ongoing support, I will quote from the first three paragraphs of the Third Order at page 2:
This Court Further Orders that the Petitioner, Brenda June Nicell, a.k.a. Brenda June McNeil, shall have sole custody of the Children.
And upon This Court being unable to determine the Respondent's Guideline income, due to the Respondent's failure to file a Property and Financial Statement.
This Court Further Orders that the Order of Master Donaldson, providing that the Respondent pay $700.00 per month as both child and spousal support on the 15th day of each month, continue in effect in satisfaction of the Respondent's obligation to pay child support, commencing on the 15th day of June, 1998 and continuing on the 15th day of each month thereafter.
The fourth order deals with security for payment of child maintenance, dated July 26, 2000. The garnishment in February 2000, of course, preceded the fourth order. The fourth order is not relevant.
[4] The issue in this case is how to attribute payments or a portion of them to a particular order. If the payments in 2000 are, as the Respondent asserts, attributable to or paid pursuant to or under the Second Order, there is no commencement day under subsection 56.1(4) of the Act to the effect that all such receipts are taxable under the formula in paragraph 56(1)(b) of the Act.
[5] To the extent that payments are attributable to or paid pursuant to or under the Third Order, there is a commencement day. Determination of the question requires close examination of the Second and Third Orders. I am of the view that the payment in 2000, other than on account of arrears under the Second Order, has been made pursuant to or under the Third Order. The Second Order states expressly that it is an interim order. It states expressly that its term is until "further order of the Court". That interim order ends upon issue of a further order. That is the basis upon which it is properly described as an "interim order". In the same way custody was interim in the Second Order and final in the Third Order, it can be equally said that the payments under the Second Order were interim and final in the Third Order.
[6] Respondent's counsel argues that the wording of the Third Order maintains the Second Order by its express language. The Third Order expressly orders that the Second Order "continue in effect in satisfaction" of the obligation to pay child support. The Respondent argues this does not vary amounts or otherwise create a commencement day under paragraph 56.1(4)(b).
[7] I disagree with Respondent's counsel on this point. Under which order are the payments commencing June 15, 1998 made? I think they are made under the Third Order. That order replaces an interim order. As at June 28, 1998 (the date of the Third Order) there is no prior order pursuant to which payments can be made. That the Third Order does not vary a payment obligation is not relevant. That it continues the Second Order in respect of support payments is not to say that payments are under the Second Order when it is the Third Order under which the payments are ultimately required. The payments are not required by virtue of the Second Order; they are required by virtue of the Third Order.
[8] Where payments are made under an order dated after April 1997, there is a commencement day under paragraph 56.1(4)(a) regardless that a further commencement day cannot be found under paragraph 56.1(4)(b). Counsel for the Respondent argues that this construction renders paragraph 56.1(4)(b) meaningless
if a further commencement day cannot be found under paragraph 56.1(4)(b). She argues where a subsequent order (after April 1997) such as the Third Order makes no changes to a prior order (before May 1997) of the type referred to in subparagraphs 56.1(4)(b)(ii) through (iv), it, the subsequent order, cannot be considered to be an order creating a commencement day under paragraph 56.1(4)(a).
[9] Paragraph 56.1(4)(b) acknowledges the existence of a subsequent order after April 1997, but still lists conditions as a requirement for there to be a commencement day. If such conditions, it is argued, are not met, there cannot be a commencement day by virtue of that subsequent order. I would agree with Respondent counsel's argument, except where there is a pre-May 1997 order that by its own terms cannot survive the post-April 1997 order.
[10] Paragraph 56(1)(b) excludes from the income inclusion amount the subject child support amounts if they become receivable "under an agreement or order on or after its commencement day". The definition of "commencement day" refers to two orders where there are two orders. In this case the support payments commencing June 15th, 1998 are only receivable under the Third Order. There is no earlier order under which payments on and after that date are receivable. While that might be said of all cases involving a subsequent order, in this case, the earlier order had an express term that ended when the Third Order was made. That is, in this case, prior to the Third Order, we have an interim order with a specified term. By its terms it died on the issue of the Third Order. That the support amount was unvaried by the Third Order is not relevant in this case.
[11] That the Third Order states that it continues the Second Order does not advance the Respondent's position in my view. Continuing the terms of a prior order as a term of a later order underlines that the payments are a requirement of the later order. The later order does not resurrect the prior order. In the case at bar the Third Order is the only relevant order. That an irresponsible parent frustrated a variation does not change that fact. The Third Order is the only order under which payments are required after the date of that order. The date of the Third Order is the "commencement day" under paragraph 56.1(4)(a).
[12] Accordingly, there is in this case a distinction between the payment of arrears of amounts due prior to the Third Order and arrears of amounts due after that Order. The former are taxable; the latter are not.
[13] Also I note there is likely a June 26, 1998 commencement day under subparagraph 56.1(4)(b)(iii) in this case. The arrears under the interim order as declared by the Third Order, according to the Appellant's testimony, cannot be reconciled with actual arrears at that time. Further, the May 15, 1998 payment seems to have been omitted. If that is the case, the Third Order has the effect of varying total child support. That arrears can't be reconciled is the uncontradicted testimony of the Appellant corroborated or borne out by a simple calculation. That is likely sufficient to satisfy the onus in this case.
[14] The Crown cannot simply say we don't know what the judge did in calculating arrears, so we must assume that the arrears calculation is correct. Clearly the judge intended a correct statement of arrears based on affidavits and documents before him, and surely his calculation is prima facie evidence that the arrears were correctly calculated. But that prima facie position can be undermined by testimony and simple mathematics.
[15] Subparagraph 56.1(4)(b)(iii) provides a commencement day where an order varies total child support payments. It does not consider intent. That is, it does not consider the intent of the judge calculating the arrears and payment obligation. It looks to the effect or result of the order. In this case the Third Order seems to have varied total payment requirements. As such it seems to follow that from the date of the Third Order, amounts receivable under it are not taxable. Admittedly this resolve of the issue would raise questions around disputed arrears that I have not fully considered. There is still, of course, the omitted maintenance for May 1998 which by itself seems to invoke a commencement day under subparagraph 56.1(4)(b)(iii). However, it is not necessary for me to decide this appeal on the basis of finding a commencement day under paragraph 56.1(4)(b) as I have already concluded that there was a commencement day under paragraph 56.1(4)(a) on the making of the Third Order, there being no prior order to then consider so that all receipts in 2000 are excluded from income under paragraph 56(1)(b) excepting the $27,065.00 which represents the arrears
receivable under the interim order. Interest, if any, received on that arrears amount would also be excepted.
[16] The appeal, therefore, is allowed to this extent and costs are allowed to the Appellant.
Signed at Ottawa, Canada, this 15th day of May 2003.
"J.E. Hershfield"
_____________________________
J.T.C.C.
|
CITATION:
COURT FILE NO.: |
2003TCC326
2002-4572(IT)I |
|
STYLE OF CAUSE: |
Brenda McNeil and Her Majesty the Queen |
|
|
|
|
PLACE OF HEARING: |
Vancouver, British Columbia |
|
DATE OF HEARING: |
April 28, 2003 |
|
REASONS FOR JUDGMENT BY: |
The Honourable Judge J.E. Hershfield |
|
DATE OF JUDGMENT: |
May 16, 2003 |
|
APPEARANCES: |
|
For the Appellant: |
The Appellant herself |
|
Counsel for the Respondent: |
Amy Francis |
|
COUNSEL OF RECORD: |
|
For the Appellant: |
|
Name: |
|
|
Firm: |
|
|
For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |