A-692-80
The Queen (Appellant)
v.
Gordon A. Bryce (Respondent)
Court of Appeal, Heald, Urie JJ. and Verchere
D.J.—Vancouver, February 9 and 15, 1982.
Income tax — Income calculation — Deductions — Decree
nisi requiring respondent to pay all mortgage payments and
other amounts — One-half of those amounts to be paid for the
benefit of respondent's former wife — Trial Division held that
payments made by respondent during his 1975 taxation year
were deductible — Whether Trial Judge erred in holding that
s. 60.1 of the Income Tax Act provided statutory authority for
the deduction — Whether payments constitute an "allowance"
within the meaning of s. 60(6) of the Act — Income Tax Act,
S.C. 1970-71-72, c. 63, ss. 56(1)(b), 56.1, 60(b), 60.1, 178(2).
Appeal from a decision of the Trial Division which held
payments made by the respondent on behalf of his former wife
during the 1975 taxation year deductible from income. Pursu
ant to the terms of a maintenance agreement incorporated in
the decree nisi, the respondent was required to pay the mort
gage instalments on a duplex to be transferred in joint tenancy
in his name and that of his former wife, and to pay the land
taxes, water and sewer rates, cablevision charges and mainte
nance expenses with respect to the duplex. The decree nisi also
stipulated that half of those amounts were to be paid for the
benefit of the respondent's former spouse. The issue turns on
the interpretation to be given to section 60.1 of the Income Tax
Act (as added by S.C. 1974-75-76, c. 26, subsection 31(1)).
The appellant contends that the Trial Judge erred in holding
that section 60.1 provided, in itself, the statutory authority for
the deduction; that to ascertain the deductibility of such pay
ments, paragraph 60(b) of the Income Tax Act must be
considered; and that the payments were not made as an "allow-
ance" as that term was interpreted by this Court in the line of
cases which began with the Pascoe case.
Held, the appeal is allowed. Since the only permissible
deductions in the computation of taxable income are those
authorized by the Income Tax Act and since section 60.1 does
not authorize a deduction, the taxpayer, in determining the
deductibility of alimentary payments, must bring himself
within the ambit of paragraph 60(b) of the Act. This Court is
bound by its previous decisions which have held that payments
of the type made by the respondent do not constitute an
"allowance" within the ambit of paragraph 60(b) even though
they are deemed, by virtue of section 60.1, to have been made
for the benefit of the spouse. If Parliament had intended that
payments made under section 60.1 were to be deductible with
out reference to paragraph 60(b), the section could easily have
been so drafted. Each of the sections of subdivision e which
permits deductions specifically employs words such as "There
may be deducted" or "may deduct" to authorize deductions.
Section 60.1 contains no such authorization.
Attorney General of Canada v. Weaver [1976] 1 F.C. 423,
followed. R. v. Gagnon [1982] 2 F.C. 255, followed. R. v.
Pascoe [1976] 1 F.C. 372, followed.
APPEAL.
COUNSEL:
Wilfrid Lefebvre and Jeanne Watchuk for
appellant.
Elko Kroon for respondent.
SOLICITORS:
Deputy Attorney General of Canada for
appellant.
Elko Kroon, North Vancouver, for respond
ent.
The following are the reasons for judgment
rendered in English by
URIE J.: This is an appeal from a judgment of
the Trial Division [[1981] 1 F.C. 587] dismissing
the appellant's appeal from a decision of the Tax
Review Board which had allowed the respondent's
appeal from a reassessment of income tax made by
the Minister of National Revenue with respect to
the respondent's 1975 taxation year.
The relevant facts, as disclosed in an agreed
statement of facts, are these: The respondent was
divorced from his former wife on March 20, 1975.
The decree nisi of the Supreme Court of British
Columbia incorporated the terms of a maintenance
agreement between the respondent and his wife,
the material terms of which required the respond
ent to pay:
(a) all mortgage payments on a duplex to be
transferred to the respondent and his former
wife as joint tenants, of which one half was to be
occupied by the wife;
(b) all expenses necessary to maintain the
duplex in good condition;
(c) all the land taxes, sewer rates, water rates
and cablevision charges as they fell due.
Only the payments made pursuant to (a) and (c)
are in issue in this appeal.
The decree nisi also contained a provision
whereby the former wife would forego any claim
for monthly support from the respondent other
than that provided by his paying one-half of the
payments referred to in the immediately preceding
paragraph.
The respondent, during the year 1975, complied
with all of the provisions contained in the agree
ment. The following amounts were paid by him:
Mortgage $2,148.00
Taxes 655.99
Water & sewer 151.50
Cablevision 59.40
Total $3.014.89
The respondent claimed as a deduction in the
computation of his taxable income for the 1975
taxation year the sum of $1,256.20, which is 10/12
of 1/2 of the above total, the decree nisi having
been granted in March 1975. The sole issue in this
appeal is whether or not the respondent was en
titled to the deduction. The learned Trial Judge
held, as did the Tax Review Board, that he was. It
is the appellant's contention that the Trial Judge
was in error in holding that section 60.1 of the
Income Tax Act, as amended by S.C. 1974-75-76,
c. 26, subsection 31(1), provided, in itself, the
statutory authority for the deduction.
To appreciate the appellant's position it is neces
sary to examine the relevant sections of the Income
Tax Act'. Division B contains the various provi
sions for the computation of income for tax pur
poses. Subdivision e of Division B deals with cer
tain deductions permitted in the computation.
Paragraph 60(b) reads as follows:
60. There may be deducted in computing a taxpayer's income
for a taxation year such of the following amounts as are
applicable:
(b) an amount paid by the taxpayer in the year, pursuant to a
decree, order or judgment of a competent tribunal or pursu
ant to a written agreement, as alimony or other allowance
' R.S.C. 1952, c. 148, as amended by S.C. 1970-71-72, c. 63,
s. 1 ("the Act").
payable on a periodic basis for the maintenance of the
recipient thereof, children of the marriage, or both the
recipient and children of the marriage, if he was living apart
from, and was separated pursuant to a divorce, judicial
separation or written separation agreement from, his spouse
or former spouse to whom he was required to make the
payment at the time the payment was made and throughout
the remainder of the year;
Its companion paragraph, 56(1)(b), is contained
in subdivision d- which relates to income from
various sources. It reads as follows:
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) any amount received by the taxpayer in the year, pursu
ant to a decree, order or judgment of a competent tribunal or
pursuant to a written agreement, as alimony or other allow
ance payable on a periodic basis for the maintenance of the
recipient thereof, children of the marriage, or both the
recipient and children of the marriage, if the recipient was
living apart from, and was separated pursuant to a divorce,
judicial separation or written separation agreement from, the
spouse or former spouse required to make the payment at the
time the payment was received and throughout the remain
der of the year;
In 1976, this Court rendered judgment in the
case of The Queen v. Pascoe 2 . In that case the
respondent and his wife had entered into a separa
tion agreement providing for fixed monthly main
tenance payments and, as well, an agreement that
the respondent husband pay all medical, hospital
and dental accounts on behalf of his wife and
children and certain educational expenses of the
children. It was the deductibility for tax purposes
of payments so made that was the issue in that
appeal. Pratte J., speaking for the Court, said at
page 374 of the report:
In our view, neither the sums paid by the respondent for the
education of his children nor those paid for the medical
expenses were deductible.
First, we are of opinion that the payment of those sums did
not constitute the payment of an allowance within the meaning
of section 11(1)(1). An allowance is, in our view, a limited
predetermined sum of money paid to enable the recipient to
provide for certain kinds of expense; its amount is determined
in advance and, once paid, it is at the complete disposition of
the recipient who is not required to account for it. A payment
in satisfaction of an obligation to indemnify or reimburse
someone or to defray his or her actual expenses is not an
2 [ 1976] 1 F.C. 372.
allowance; it is not a sum allowed to the recipient to be applied
in his or her discretion to certain kinds of expense.
Furthermore, even if the payment of the expenses here in
question could be construed as the payment of an allowance, it
was not, in our view, an allowance "payable on a periodic
basis" as required by section 11(1)(l). The payment was not
determined by the separation agreement and the decree nisi to
be at fixed recurring intervals of time. Indeed, the agreement
and decree said nothing about when payment of the expenses
must be made. It is not relevant that the educational expenses
may, in fact, have been paid on a periodic basis since the
periodicity required by the statute refers to the manner in
which the allowance is payable, not to the manner in which it is
in fact paid.
In the same year, this Court in Attorney Gener
al of Canada v. Weaver' in a majority decision
followed Pascoe and held that certain payments,
including mortgage payments, paid to third parties
directly by the husband, in compliance with the
terms of a separation agreement, did not fall
within the definition of "allowance" enunciated by
Pratte J. and were, therefore, not deductible.
Both of the above cases were in respect of
taxation years prior to the enactment of section
60.1 supra.
In 1981, in The Queen v. Gagnon 4 this Court
again applied the ratio decidendi of the Pascoe
case in respect of mortgage payments paid by a
spouse to his former wife in holding that they were
not an "allowance" within the meaning of para
graph 60(b) on the basis that the recipient had no
discretion as to the use of the money. While it
appears that two of the three taxation years under
review in that appeal were subsequent to the
enactment of section 60.1, no reference to that
section is made in the reasons for judgment.
The consequence of all of the foregoing is that,
as the Trial Judge said, the real issue here is as to
the interpretation to be given to section 60.1 in
light of the Pascoe case. Section 60.1 read as
follows in 1975:
60.1 Where, after May 6, 1974, a decree, order, judgment or
written agreement described in paragraph 60(6) or (c), or any
variation thereof, has been made providing for the periodic
payment of an amount by the taxpayer to or for the benefit of
3 [ 19761 1 F.C. 423.
4 [19821 2 F.C. 255.
his spouse, former spouse or children of the marriage in the
custody of the spouse or former spouse, the amount or any part
thereof, when paid, shall be deemed to have been paid to and
received by the spouse or former spouse if the taxpayer was
living apart from the spouse or former spouse at the time the
payment was received and throughout the remainder of the
year in which the payment was received.
Its companion, section 56.1, follows:
56.1 Where, after May 6, 1974, a decree, order, judgment or
written agreement described in paragraph 56(1)(b) or (c), or
any variation thereof, has been made providing for the periodic
payment of an amount to the taxpayer by his spouse or former
spouse or for the benefit of the taxpayer or children of the
marriage in the custody of the taxpayer, the amount or any
part thereof, when paid, shall be deemed to have been paid to
and received by the taxpayer if the taxpayer was living apart
from the spouse or former spouse at the time the amount was
paid and throughout the remainder of the year in which the
amount was paid.
If section 60.1 permits the mortgage payments
to be deducted by a taxpayer such as the respond
ent in the computation of his taxable income in
1975, then section 56.1 operates to include such
payments in the computation of his spouse's
income for that year.
It should first be observed that section 60.1 does
not, in specific terms, provide for deducting peri
odic payments made to or for the benefit of a
spouse, former spouse or her children in her cus
tody, in the computation of a taxpayer's taxable
income although the section appears in subdivision
e which is headed "Deductions in Computing
Income." Rather, on its face, it simply deems such
payments to have been paid to and received by the
spouse or former spouse if she and the taxpayer
were living apart when the payment was received
and for the remainder of the year in which it was
received. In this respect, then, it overcomes one of
the bases for finding that periodic payments not
directly paid to the spouse do not constitute an
"allowance" as that term in paragraph 60(b) has
been interpreted by this Court in the Pascoe and
Weaver cases.
However, according to counsel for the appellant,
the section goes only that far and to ascertain the
deductibility of such payments regard must be had
to paragraph 60(b) as interpreted in the cases
earlier referred to. He conceded that
(a) the payments in this case were made when
the spouses were living apart when received and
throughout the remainder of the year, pursuant
to a decree, order, judgment or separation
agreement;
(b) the payments were made pursuant to a
decree, order or judgment or a separation
agreement;
(c) payments were part of a series payable on a
periodic basis; and
(d) by virtue of section 60.1 were paid to a
spouse or former spouse.
The only condition imposed by paragraph 60(b)
that was not met in this case, according to appel
lant's counsel, was that they were not paid by the
taxpayer as an "allowance" as that term was
interpreted in the line of cases in this Court com
mencing with Pascoe, supra, because the payments
were not at the complete disposition of the recipi
ent but rather, were committed to the mortgagee
and the payees of land taxes, water rates and
cablevision levies in accordance with the terms of
the separation agreement.
The learned Trial Judge dealt with similar sub
missions made before him in the following fashion
[at pages 594-595]:
Paragraph 60(b) deals with amounts paid as alimony or
other allowance for maintenance, to the recipient, children of
the marriage, or both. Section 60.1, as I interpret it, deals with
amounts, stipulated in a decree, order, judgment (of a com
petent tribunal) or pursuant to a written agreement, periodical
ly paid to, or for the benefit of, the taxpayer's spouse, former
spouse or children of the marriage.
I am unable to conceive the legislators intended to make
amounts paid to third parties, for the benefit of a spouse,
former spouse or children of the marriage, deemed payable to
those persons themselves, only if, at the same time, the docu
ment specified that the spouse, former spouse or children of the
marriage could, at any time, direct the payments be made to
different persons, or to themselves, or for other purposes than
those stipulated in the document. It would, it seems to me, be
inconsistent for the legislators to endorse maintenance agree-
ments where payments for the benefit of the person or persons
to be maintained were stipulated to be made to third parties,
and at the same time, require the agreement to give the
recipient of the benefit, complete control of the actual destina
tion and purpose of the benefit payments.
It is with considerable reluctance that I have
concluded that the Trial Judge's interpretation of
the two sections cannot be upheld and that the
appellant's contention must prevail. Since the only
permissible deductions in the computation of tax
able income are those authorized by the statute
and since section 60.1 does not authorize a deduc
tion, the taxpayer, in determining the deductibility
of alimentary payments, must bring himself within
the ambit of paragraph 60(b). In the interpretation
of that paragraph we are bound by the previous
decisions of this Court which have held that pay
ments of the type made by the respondent here do
not constitute an "allowance" within the ambit of
the paragraph despite the fact that, by virtue of
section 60.1, they are deemed to have been made
for the benefit of the spouse. If Parliament had
intended that payments envisaged by section 60.1
were to be deductible without reference to para
graph 60(b) to determine their deductibility, the
section could easily have been so drafted. It is
noteworthy that each of the sections of subdivision
e - which permits deductions specifically employs
words such as "There may be deducted" or "may
deduct" to authorize the deduction to be made by
the taxpayer in computing his taxable income.
Section 60.1 contains no such authorization.
The appeal, accordingly, must be allowed and
the assessment of the Minister of National Reve
nue dated June 21, 1976, confirmed. In accord
ance with the provisions of subsection 178(2) of
the Act, the respondent shall be entitled to recover
from the Minister of National Revenue, all his
reasonable and proper costs both here and below
after taxation thereof.
HEALD J.: I concur.
VERCHERE D.J.: I concur.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.