BETWEEN:
and
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Appeal heard on October 12, 2005, at Montreal, Quebec.
Before: The Honourable Justice Lucie Lamarre
Appearances:
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JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 2003 taxation year is dismissed.
Signed at Ottawa, Canada, this 1st day of November 2005.
"Lucie Lamarre"
BETWEEN:
ALON AFRIAT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
[1] The appellant is appealing an assessment by the Minister of National Revenue ("Minister") for his 2003 taxation year disallowing an amount of $25,000 claimed as an alimony deduction. The facts upon which the Minister relied in disallowing the deduction are set out in paragraph 11 of the Reply to the Notice of Appeal as follows:
a) The appellant was married to Rosanne Lee Bender, February 15, 1981.
b) From the marriage there were born three children Chad, Amanda, and Sindy.
c) By judgement from the Superior Court of Quebec, November 11, 1992 the appellant was divorced from Rosanne Lee Bender and the Court established alimony at $225.00 per week.
d) During 2003 the appellant petitioned the Superior Court of Quebec to annul the alimentary pension and arrears of the alimentary pension and to vary the child support.
e) The named respondent in the petition was Rosanne Lee Bender.
f) By way of consent before the Superior Court, Family Division August 11, 2003, the appellant and Rosanne Lee Bender agreed to include in the judgement, which was to intervene upon the appellant's motions to annul the alimentary pension and to vary the child support, the following pertinent conditions:
i) (1) That in consideration for a lump sum settlement as aliment, in the amount of twenty-five thousand dollars ($25,000), the Respondent does hereby agree to annul the alimentary pension for spousal support and child support, and any and all arrears relating thereto, including the arrears which accrued from 1990 to 2003 inclusively. The payment of the $25,000 shall be paid upon the ratification of the present agreement with the Court.
ii) (3) That in consideration of the lump sum settlement of $25,000, already referred to above, the Respondent does hereby irrevocably renounce to any and all right which she may have had against the Petitioner, arising from their marriage, including their matrimonial regime, family patrimony, pension plans, public or private, compensatory allowance, lump sum settlement, claims for gifts either inter vivos or upon death, exigible or not, of loans, advances, contributions and alimentary pension.
iii) (5) That the parties do hereby agree that the Petitioner shall pay to the Respondent, for the support of his minor daughter Sindy, the amount of $106.13 monthly, in conformity with the guidelines.
g) The payment of $25,000 made by the appellant following the consent to judgment released the appellant from any past and future obligations and liabilities arising from the Judgment from the Superior Court of Quebec, November 11, 1992.
h) The consent to judgment revised the amount payable as child support to support the only minor child remaining Sindy.
[2] All these facts were admitted by the appellant.
[3] In addition, it was admitted by the appellant, and is also confirmed in the appellant's Petition for Extinctive Prescription presented for hearing before the Superior Court of the province of Quebec on March 26, 2002 (Exhibit R-3), that the total amount owing by the appellant at the beginning of 2002 was $99,707.31, of which $25,405.54 was attributable to the period from 1990 to 1992.
[4] It is therefore clear that, in ratifying the terms of the consent to judgment (Exhibits R-2 and R-3), the Superior Court of Quebec varied the terms of the November 11, 1992, judgment by releasing the appellant from any past and future obligations and liabilities with respect to the support ordered to be paid in that judgment, in consideration of a payment of $25,000 to his former spouse.
[5] The payment of $25,000 is capital in nature and therefore not deductible (see Minister of National Revenue v. Armstrong, [1956] S.C.R. 446). Indeed, such a lump-sum payment made in full settlement of all amounts payable in the future to a former spouse is no longer a payment of an amount payable as an allowance on a periodic basis pursuant to paragraph 60(b) and subsection 56.1(4) of the Income Tax Act ( « Act » ). Moreover, this is not a case where the lump sum was paid to catch up on periodic payments which had fallen into arrears; if this were such a case, the lump sum would be deductible (The Queen v. Sills, [1985] 2 F.C. 200).
[6] The settlement amount of $25,000 is much less than what was owed under the November 11, 1992, Superior Court judgment and was paid to release the appellant from any liability imposed by that judgment in respect of arrears of support payments and future obligations towards his former spouse. In such a case, the character of the payment is altered and the lump-sum payment no longer qualifies as the payment of periodic payments not made on time (see Glazier v. Canada, [2003] T.C.J. No. 133 (QL); see also Groleau v. Canada, [2002] T.C.J. No. 103 (QL)).
[7] The appellant indicated that he was misled by employees of the Canada Customs and Revenue Agency ("CCRA") when the consent to judgment was drafted. He was told that the way it was drafted would not preclude him from deducting the payment as alimony.
[8] First, the respondent is not bound by wrong advice given to a taxpayer on a question of law. Second, the appellant explained that, because of a change in his financial resources and in his former spouse's and his children's financial needs, the alimony payment needed to be changed significantly. This meant that the new agreement entered into by the former spouses and ratified by the Superior Court of Quebec was unquestionably intended to vary the terms of the former judgment. The appellant's intent in signing the consent to judgment was to end for the future the payment of support to his former spouse imposed by the November 11, 1992 judgment and to settle the arrears due by payment of a lower amount than he actually owed. That being so, the lump-sum payment was in the nature of a capital payment and, notwithstanding the terms used in the consent, the end tax result would have been the same. Such a payment is not an allowance payable on a periodic basis and therefore is not deductible.
[9] Although it is deplorable that employees of the CCRA sometimes wrongly advise taxpayers, I do not think that in the present case it changed anything in the appellant's situation.
[10] The amount of $25,000 did not qualify as a support payment and therefore was not deductible in the appellant's 2003 taxation year pursuant to paragraph 60(b), section 60.1 and subsection 56.1(4) of the Act.
[11] The appeal is dismissed.
Signed at Ottawa, Canada, this 1st day of November 2005.
"Lucie Lamarre"
Lamarre, J.
COURT FILE NO.: 2005-2157(IT)I
STYLE OF CAUSE: ALON AFRIAT v. HER MAJESTY THE QUEEN
PLACE OF HEARING: Montreal, Quebec
DATE OF HEARING: October 12, 2005
REASONS FOR JUDGMENT BY: The Honourable Justice Lucie Lamarre
DATE OF JUDGMENT: November 1, 2005
APPEARANCES:
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For the Appellant: |
The Appellant himself
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Counsel for the Respondent: |
Johanne M. Boudreau |
COUNSEL OF RECORD:
Firm:
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Ontario