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Docket: 2002-2869(IT)I |
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BETWEEN: |
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LISE BOULAY, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
_______________________________________________________________
Appeal heard on January 23, 2003, at Ottawa, Ontario,
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By: The Honourable Judge Campbell J. Miller |
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Appearances: |
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For the Appellant: |
The Appellant herself |
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Counsel for the Respondent: |
George Boyd Aitken |
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JUDGMENT
The appeal from the assessment of tax made under the Income Tax Act for the 2000 taxation year is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant is not required to include the amount of $4,800 in her income.
Signed at Ottawa, Canada, this 5th day of March, 2003.
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"Campbell J. Miller" |
J.T.C.C.
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Citation: 2003TCC96 |
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Date: 20030305 |
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Docket: 2002-2869(IT)I |
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BETWEEN: |
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LISE BOULAY, |
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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
Miller J.
[1] This is an appeal by way of Informal Procedure by Ms. Lise Boulay of her 2000 taxation year. The Minister of National Revenue included in Ms. Boulay's income for that year support payments received from John Carey in the amount of $4,800. Ms. Boulay maintains that the support payments have been wrongly included in her income.
[2] Ms. Boulay's former common-law partner, Mr. Carey, likewise appealed assessments, although for the 1994 and 1995 taxation years. He sought deductibility of support payments made through garnishment proceedings. He was successful in his appeals, but that decision was centred more on the question whether subsections 60(b) or 60(c) should apply. It does not appear that detailed argument on the retrospective application of amending legislation was presented in that case. That was, however, thoroughly canvassed before me and leads me to the opposite conclusion from Carey v The Queen.[1] While such an anomaly is never welcome, it is not surprising in the application of tax laws in an area which one judge has described as "faulty legislation, not clearly representing the intent of Parliament".[2] Further, different judges hear different arguments - inconsistencies may result.
[3] The facts are straightforward. Ms. Boulay and Mr. Carey lived in a common-law relationship from 1984 to 1987. A child, Alexander Thomas Carey was born of the relationship on August 16, 1985. Since January 1988, Ms. Boulay and Mr. Carey have lived separate and apart. On March 14, 1989, they signed a written separation agreement in which Mr. Carey agreed to pay $400 a month commencing January 1, 1988, for the support of Alexander. Ms. Boulay received $4,800 in 2000 for the support of Alexander.
[4] Ms. Boulay reported the support payments as income for several years until she read materials from Revenue Canada, who happens to be her employer, suggesting those amounts were not taxable. She sought and obtained a reassessment of the 1989 to 1995 taxation years excluding the payments from income, although initially Revenue Canada suggested the payments were to be included. From 1996 to 2000, Ms. Boulay did not report the support payments in her income.
[5] Ms. Boulay relies on the Bromley[3]v. The Queen and Skory v. The Queen[4] cases to support her position that in circumstances of a common-law relationship, which broke down in 1989, she and Mr. Carey should not be considered spouses and, therefore, she is not caught by the rules bringing support payments into income.
[6] The Respondent, while acknowledging there appear to be cases going both ways in the Tax Court of Canada, argues that the correct line of cases to be followed are Hunter v. The Queen,[5] Scott v. The Queen[6] and Girard v. The Queen,[7] and of course, the Carey decision which is the flip side of Ms. Boulay's particular circumstances.
[7] Once again, I am faced with the daunting task of interpreting the support payment provisions of the Income Tax Act. The rules are indeed convoluted. It is not appropriate simply to analyze the provisions as they stand for a particular year, in this case 2000, but it is imperative that the amendments to these provisions over the years also be reviewed to ensure the correct result. This entails not just a review of the particular amended provision but also a review of the language amending the provision. As soon as I attempt to explain this, I realize how difficult the legislator's task is in implementing changes. In implementing the amendments in 1997, the Government proceeded on the basis that the existing tax treatment of a couple caught up in support payments would not change unless the couple themselves did something to bring themselves within the parameters of the new regime. The 1993 amendments, depending on the interpretation, may or may not unilaterally change a couple's status quo. This is worrisome. On a full retrospective interpretation of subsection 252(4), introduced in 1993, support payments would alter from being non-deductible to deductible with no agreement of the parties. Such an interpretation works against Ms. Boulay. I will explain why, in this case, I prefer to rely on an alternate interpretation.
[8] Notwithstanding the taxation year in question is 2000, the analysis requires a review of three time periods in Ms. Boulay's tax life. First, prior to 1992; second, from 1992 to April 25, 1997; and third, after 1997. Why? Because the laws in this area underwent significant changes in 1992 and again in 1997. More importantly, to determine Ms. Boulay's treatment in the latter period requires an understanding of her treatment in each of the two previous periods. I will explain why by starting with what I will call the new regime of support payments, post-April 25, 1997. In the year 2000, paragraph 56(1)(b), the provision on which the Respondent relies to tax these payments in Ms. Boulay's hands, reads:
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) the total of all amounts each of which is an amount determined by the formula
A - (B + C)
where
A is the total of all amounts each of which is a support amount received after 1996 and before the end of the year by the taxpayer from a particular person where the taxpayer and the particular person were living separate and apart at the time the amount was received,
B is the total of all amounts each of which is a child support amount that became receivable by the taxpayer from the particular person under an agreement or order on or after its commencement day and before the end of the year in respect of a period that began on or after its commencement day, and
C is the total of all amounts each of which is a support amount received after 1996 by the taxpayer from the particular person and included in the taxpayer's income for a preceding taxation year;
[9] Off we start on the tortuous legislative path as this provision requires looking at the definition of 'support amount' and 'child support amount' and, unfortunately, 'commencement day', which all read as follows:
56.1(4) The definitions in this subsection apply in this section and section 56.
"support amount" means an amount payable or receivable as an allowance on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and children of the recipient, if the recipient has discretion as to the use of the amount, and
(a) the recipient is the spouse or common-law partner or former spouse or common-law partner of the payer, the recipient and payer are living separate and apart because of the breakdown of their marriage or common-law partnership and the amount is receivable under an order of a competent tribunal or under a written agreement; or
(b) the payer is a natural parent of a child of the recipient and the amount is receivable under an order made by a competent tribunal in accordance with the laws of a province.
"child support amount" means any support amount that is not identified in the agreement or order under which it is receivable as being solely for the support of a recipient who is a spouse or common-law partner or former spouse or common-law partner of the payer or who is a parent of a child of whom the payer is a natural parent.
"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.
[10] The definition of "support amount" was introduced by S.C. 1997, chap. 25, subsection 9(6) and modified by S.C. 1998, chap. 19, subsection 307(1), which reads:
Subsection 9(6) applies after 1996, except that
(a) a support amount, as defined in subsection 56.1(4) of the Act, as enacted by subsection (6), does not include an amount
(i) that was received under a decree, order or judgment of a competent tribunal, or under a written agreement, that does not have a commencement day (within the meaning assigned by that subsection 56.1(4)), and
(ii) that if paid and received would, but for this Act, not be included in computing the income of the recipient of the amount; ...
As I indicated in the Skory[8] decision, despite the quadruple negative in this amending provision, it is decipherable and indeed, is eminently sensible. It means that if the recipient was not subject to bringing the payments into income before the amendments introducing the new regime, she is not subject to bringing the payments into income after the introduction of the new regime. She and Mr. Carey could agree to bring themselves within the new regime by establishing a commencement day, but they did not, as no subsequent agreement was entered into between them.
[11] So, it becomes necessary to determine whether Ms. Boulay's receipts were to be included in income prior to 1997. If so, then she is caught by the new definitions and the receipts should be included in her income post-1997. If not, then the new definitions do not apply and she need not bring the receipts into income.
[12] In the middle period of the three time periods, how is Ms. Boulay to be treated? In fact, despite some to-ing and fro-ing by the Department, she was not required to bring these payments into income. The question, however, is "should she have been so required?".
[13] Subsection 252(4) was introduced to "apply after 1992". It reads in part:
In this Act,
(a) words referring to a spouse at any time of a taxpayer include the person of the opposite sex who cohabits at that time with the taxpayer in a conjugal relationship and
(i) has so cohabited with the taxpayer throughout a 12-month period ending before that time, or
(ii) is a parent of a child of whom the taxpayer is a parent
and, for the purposes of this paragraph, where at any time the taxpayer and the person cohabit in a conjugal relationship, they shall, at any particular time after that time, be deemed to be cohabiting in a conjugal relationship unless they were not cohabiting at the particular time for a period of at least 90 days that includes the particular time because of a breakdown of their conjugal relationship;
(b) references to marriage shall be read as if a conjugal relationship between 2 individuals who are, because of paragraph (a), spouses of each other were a marriage;
[14] I accept those cases, most recently reviewed in Associate Chief Judge Bowman's decision in Hunter,[9] which determine that this provision does apply retrospectively in certain situations. As I indicated in Girard, there are two possible interpretations of the application of subsection 252(4):
(a) For taxation years after 1992, I am to interpret "spouse" in accordance with subsection 252(4) or
(b) I am to interpret "spouse" in accordance with subsection 252(4) for only those conjugal relationships existing after 1992.
[15] There is, however, a third interpretation that this case demands; that is, for payments made pursuant to agreements (or orders) made prior to the legislation enacting subsection 252(4), the expanded definition in subsection 252(4) of spouse does not apply. Put conversely, subsection 252(4) only acts retrospectively to relationships prior to 1993 in connection with payments made pursuant to agreements or orders made after 1992; that is, made after the new legislation was in effect.
[16] Associate Chief Judge Bowman summarized the difficulty with interpreting these provisions as follows:
[20] I have set out the conflicting interpretations arrived at after careful analysis by experienced and respected judges of this court. No one could be criticized for adopting one as opposed to the other. I think, however, that the preferable interpretation is that subsection 252(4) has the effect, in its application to a payment made in 1995, pursuant to an agreement made in 1994 arising out of a common-law relationship that commenced and ended before 1993, of deeming that relationship to be a marriage and the parties to the relationship to have been spouses and therefore, in 1995, to be former spouses for the purposes of paragraph 60(b).
[21] To say that a new provision "applies after 1992" is not to say that the effect of its application cannot extend to before 1993. Here we have a provision, subsection 252(4), that in effect deems a particular relationship to be a marriage. It prospectively attributes to an event that existed prior to its effective date (the common-law relationship that existed up to February 1992) a legal effect on events that occurred after its effective date (the support payments in 1995, 1996 and 1997 made under the 1994 agreement). This description is in accordance with the analysis made by Mr. Elmer A. Driedger, Q.C., the renowned authority on statutory interpretation.
...
[25] Before proceeding any further with this analysis we should be clear on two points. The agreement between the appellant and Charlotte Olson was entered into in 1994 and the payments were made after the date, after subsection 252(4) was enacted and after the date on which it was said to apply. ... [Footnote 3: I do not imply by referring to the date of the agreement that had it been entered into in 1992 the payments under it in 1994 would not necessarily have been deductible. The relevant date is the date of the payments.]
[17] Associate Chief Judge Bowman has identified the situation before me which was not before him, that is a pre-1993 break up and a pre-1993 agreement.
[18] The matter becomes complicated in determining whether Ms. Boulay should have brought payments into income in the middle period (1992 to 1997) due to the manner in which paragraph 56(1)(b) was amended in 1993, as the then new paragraph 56(1)(b) only applies to marriage breakdown occurring after 1992. Recall Ms. Boulay's and Mr. Carey's relationship broke down prior to 1993. The amending legislation introducing the changes to paragraph 56(1)(b) made this quite clear. Subsection 17(1) of S.C. 1993, c. 24 repeals former paragraphs 56(1)(b) and (c). Subsection 17(7) of that legislation reads:
(7) Subsection (1) applies to amounts received under a decree, order or judgment of a competent tribunal or under a written agreement, with respect to a breakdown of a marriage occurring after 1992.
[19] In effect, the former paragraph 56(1)(b) is only repealed for certain situations - post-1992 breakdown of marriage. It is not repealed for pre-1993 breakdown of marriage. Therefore, in Ms. Boulay's case, the former paragraph 56(1)(b) governs in the post-1992 period.
[20] Clearly, prior to 1993, the first period, prior to the introduction of subsection 252(4), Ms. Boulay, being in a common-law arrangement, was not subject to paragraph 56(1)(b). Did the enactment of subsection 252(4) change that? If so, Ms. Boulay is in the unfortunate position of being taxed in accordance with a provision which is no longer part of the main body of the published Income Tax Act but is referenced only in the History section of the CCH version. It really seems too much to ask a taxpayer to have to delve so deeply into the inner workings of legislative amendments only to find out that her position has possibly been completely reversed from how she was previously taxed - contrary to her agreement. But that would be the impact of a full retrospective interpretation of subsection 252(4) to Ms. Boulay's situation.
[21] I am not at all satisfied this is what was intended by the 1993 amendments. I am not satisfied, firstly, because of the manner in which the 1997 amending legislation was introduced. This confirmed that the status quo would not change unless the parties agreed. Why would this legislative approach not have been the same in 1993? Secondly, the only relationship in which this legislative result works its unilateral harm is the common-law breakdown prior to 1993 with payments made pursuant to an order or agreement entered into prior to 1993. For common-law breakdown prior to 1993, with an agreement entered into after 1992, the parties would be well aware of the new definition of "spouse" and would be subject to such provisions. This was the situation in both Girard and Hunter: the parties entered into an agreement after 1992 when the new laws were fully in effect. The retrospectivity of subsection 252(4) does not work any hardship; the parties could arrange their affairs accordingly. Only to the unsuspecting parties to a pre-1993 order or agreement arising from a common-law breakdown does this legislative approach devastate the recipient's position.
[22] It strikes me I have a choice. I can rely on a full retrospective application of subsection 252(4) or I could find that, in this particular case, the right approach is the third alternative interpretation suggested earlier. As Associate Chief Judge Bowman stated in Hunter, no one could be faulted for following a different interpretation. He went on to say:
[28] Subsection 252(4) changes the consequences of a common-law relationship that existed prior to its enactment, but only insofar as that relationship was a necessary ingredient in a claim to deduct a payment made under an agreement that came into existence after its enactment.
[23] In Ms. Boulay's case, her agreement was in place prior to the enactment. To follow an interpretation that reverses her tax treatment is tantamount to a retroactive application, not simply retrospective, as it effectively retroactively alters Ms. Boulay's agreement. I do not believe this was the intention of Parliament in introducing the 1993 amendments.
[24] The original paragraph 56(1)(b) (pre-1993), applicable to this situation, refers to being separated "pursuant to a written separation agreement from the spouse or former spouse". The written separation agreement in issue here was entered into before the subsection 252(4) enactment. The agreement does not contemplate a spouse. The law at that time did not contemplate Ms. Boulay as a spouse. In effect, there is no written agreement subject to paragraph 56(1)(b). The amending enactment in 1993 should not be read to impose an interpretation on to an agreement that was not caught by paragraph 56(1)(b), with the effect that agreement is now caught by that very same section. That would be retroactive. For agreements, such as in Girard and Hunter, which were entered after the enactment of subsection 252(4), the section can work retrospectively to find those parties' relationship constituted a marriage. No harm is done by this retrospective interpretation. Without deviating from the result in Girard or Hunter, I find subsection 252(4) applies retrospectively in determining the deduction or inclusion of support payments only to payments made pursuant to agreements or orders entered after 1992 in connection with breakdowns of marriage prior to 1993. It does not apply to make agreements entered prior to 1993 which were not caught by paragraph 56(1)(b), to now be caught by that provision.
[25] The appeal is allowed and the assessment is referred back to the Minister for reconsideration and reassessment on the basis that Ms. Boulay is not required to include $4,800 into her income in the 2000 taxation year.
Signed at Ottawa, Canada, this 5th day of March, 2003.
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"Campbell J. Miller" |
J.T.C.C.
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CITATION: |
2003TCC96 |
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COURT FILE NO.: |
2002-2869(IT)I |
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STYLE OF CAUSE: |
Lise Boulay and Her Majesty the Queen |
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PLACE OF HEARING |
Ottawa, Ontario |
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DATE OF HEARING |
January 23, 2003 |
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REASONS FOR JUDGMENT BY: |
The Honourable Judge Campbell J. Miller |
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DATE OF JUDGMENT |
March 5, 2003 |
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APPEARANCES: |
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For the Appellant: |
The Appellant herself |
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Counsel for the Respondent: |
George Boyd Aitken |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
-- |
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Firm: |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |