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____________________________________________________________________
Appeal heard on October 1, 2003 at Toronto, Ontario
____________________________________________________________________
JUDGMENT
The appeal from the assessment made under the Income Tax Act for the 2000 taxation year is dismissed.
Signed at Ottawa, Canada, this 21st day of November 2003.
Sheridan, J.
REASONS FOR JUDGMENT
Sheridan, J.
[1] This is an appeal from an assessment made under the Income Tax Act (the "Act") for the 2000 taxation year in which the Minister of National Revenue (the "Minister") denied the Appellant's claim for a deduction of the child support payments he paid in that year.
ISSUE
[2] The issue to be decided is whether the Appellant can deduct child support of $3,600 paid in the 2000 taxation year.
FACTS
[3] The Appellant testified on his own behalf. No other witnesses were called. The Appellant and his former spouse were married in 1976. The marriage suffered a breakdown during the 1992 taxation year and the Appellant and his former spouse have lived separate and apart since that time. There were two children of the marriage.
[4] Pursuant to an Order of the Ontario Court (General Division) dated July 12, 1993 ("1993 original order"), the Appellant was required to pay Interim Child Support payments of $800 per month commencing on the date of the Order.
[5] Pursuant to a subsequent Order of the Ontario Court (General Division) dated January 9, 1995 ("1995 Order"), the Appellant was required, among other things, to pay to his former spouse, more child support payments of $700 per month commencing January 1, 1995.
[6] On December 23, 1997 and January 19, 1998 respectively, the Appellant's former spouse and the Appellant signed Minutes of Settlement, which were ultimately incorporated into the Divorce Judgment dated April 23, 1998 ("Divorce Judgment"). Under the Divorce Judgment, child support was set at $300 per month, commencing January 1, 1999 to be paid regardless of the Appellant's financial situation. The Divorce Judgment further provided that if the Appellant commenced earning income prior to January 1, 1999, he would be required to pay child support in accordance with the federal Child Support Guidelines starting 60 days after the commencement of earning income. For the taxation year 2000, the Appellant made child support payments of $300 per month for a total of $3,600.
STATUTORY PROVISIONS
[7] The relevant subsections of the Income Tax Act are set out below:
Subsection 56.1(4):
(4) Definitions. 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.
ANALYSIS
[8] In 1997, the provisions of the Act governing the deductibility of child support payments were changed. Bowman, ACJ explained these changes and their impact in Kovarik v. Canada [2001] T.C.J. No. 181:
[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. Canada, [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.
[9] The question is whether in this case the Divorce Judgment constitutes a "new agreement" or "an old agreement ... changed in a particular way" so as to bar the Appellant from the shelter of the "old régime". The dates of the orders and amounts payable under each are as follows:
[10] The 1993 Original Order and the 1995 Order were made prior to the legislative changes of May 1, 1997 and therefore came under the old régime. Under the 1995 Order, in effect at the time of the 1997 legislative changes, the Appellant was obliged to pay total child support payments of $700 per month. In 1998, the Divorce Judgment was issued. It set aside the 1993 Original Order and fixed the child support at $300 per month commencing January 1, 1999.
[11] Counsel for the Respondent argued that these changes triggered the application of a "commencement day" under paragraph 56.1(4)(b) and accordingly, any child support paid after January 1, 1999 was non-deductible.
[12] Not so, argued the Appellant. He directed the Court's attention to his schedule of payments from the Family Responsibility Office [Exhibit A-8] showing that from the effective date of the 1995 Order to the coming into effect of the 1998 Divorce Judgment and beyond, he had consistently paid the sum of $300 per month. Even though required by court order to pay child support of $700 per month, the Appellant had faithfully been in default of his obligations to the tune of $400 per month. By April 23, 1998, arrears of some $14,000 had accrued but the Appellant was relieved of his obligation to pay this amount under the Divorce Judgment issued on that date.
[13] To the Appellant's way of thinking, this meant that, regardless of the amount he ought to have paid under the 1995 Order, the combined effect of his prescient default and the Divorce Judgment's ultimate cancellation of arrears was to render the pre- and post-1997 child support payment amounts the same: a seamless $300 per month. No variation; no change; no triggering of the provisions in subparagraphs 56.1(4)(b)(ii) or (iii). Accordingly, paragraph 60(b) did not apply to make the child support non-deductible.
[14] In considering the Appellant's argument, the words of Bowman, ACJ in Kovarik (supra) are instructive. In paragraph 15 of that decision, the learned judge sets out the approach to be taken in interpreting subsection 56.1(4):
[15] The cardinal rule in interpreting statutes is the plain words rule. Numerous aids to construction have been developed: see Glaxo Wellcome Inc. v. The Queen, 96 D.T.C. 1159 (aff'd 98 D.T.C. 6638 (F.C.A.), leave to appeal to S.C.C. denied). But these aids to interpretation are not necessary if the words are clear. The definition of "commencement day" in subsection 56.1(4) is not difficult to understand. Whether the February 12, 1998 agreement is a new agreement or simply a variation of the 1990 agreement it clearly changes the child support payments from $900 per month to $450 per month. I do not see how the plain words of the definition can be avoided, however sophisticated the rules of statutory interpretation one may choose to use may be.
[15] The same can be said of the present case. The Appellant admitted that the quantum of the child support payment amount in the 1995 Order ($300 per month) was different from the amount in the Divorce Judgment ($700 per month). Regardless of the amount he actually paid, the fact remains that the Appellant was not legally relieved from his obligation to pay an amount less than $700 per month until the Divorce Judgment of 1998.
[16] The Appellant attempted an alternative argument that had loosely to do with the cancellation of the arrears of child support pursuant to the Divorce Judgment and using "zero" as the starting point before the child support was finally set at $300 per month. This argument, even on its most generous interpretation, is equally unhelpful to the Appellant's position as it still results in a change or variation from the amount set in 1995.
[17] In either case, the Appellant's situation comes squarely within the reasoning in Kovarik (supra) Applying the analysis of the learned Associate Chief Justice, whether the 1998 Divorce Judgment is a new order or simply a variation of the 1995 Order, it clearly changes the child support payments from $700 per month to $300 per month. As in Kovarik (supra), the plain words of the definition cannot be avoided. Thus, under either subparagraphs 56.1(4)(b)(ii) or (iii), a "commencement day" has been triggered making the Appellant's child support payments not deductible under paragraph 60(b).
[18] The appeal is dismissed.
Signed at Ottawa, Canada, this 21st day of November 2003.
Sheridan, J.
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| SOURCE: http://decision.tcc-cci.gc.ca/en/2003/html/2003tcc793.html | Generated on 2006-01-10 |