T-1094-79
The Queen (Plaintiff)
v.
Gordon A. Bryce (Defendant)
Trial Division, Collier J.—Vancouver, June 17 and
August 12, 1980.
Income tax — Income calculation — Deductions — Divorce
— Agreement by defendant to pay all monthly mortgage
instalments and other amounts — One-half of those amounts
to be paid on behalf of former wife — Tax Review Board held
that payments made by defendant in his 1975 taxation year
were deductible — Whether requirements as to deductibility
set out in Pascoe case apply — Interpretation to be given to s.
60.1 of the Income Tax Act — Income Tax Act, S.C. 1970-
71-72, c. 63, ss. 56(1)(b), 56.1, 60(b), 60.1.
This is an appeal from a decision of the Tax Review Board
which held payments made by the defendant on behalf of his
former wife during the 1975 taxation year deductible from
income. Pursuant to the decree nisi which provided for the
transfer of a duplex to joint tenancy in the names of the
defendant and his ex-wife, the defendant agreed to pay all the
monthly instalments for mortgage, land taxes, water rates,
cablevision and maintenance. The decree also stipulated that
one-half of those amounts were to be paid for the benefit of his
former wife. The issue turns on the interpretation to be given to
section 60.1 of the Income Tax Act (assented to on March 13,
1975) in light of the Pascoe decision which only dealt with
paragraph 60(b) of the Act. The Crown argues that the
requirements for deductibility set out in the Pascoe case apply
to amounts paid pursuant to section 60.1 and that, even if those
amounts fell within the strictures of that case, they were not at
the former wife's complete disposition.
Held, the action is dismissed. The decree, order, judgment or
written agreement referred to in section 60.1 is the "decree,
order or judgment of a competent tribunal or pursuant to a
written agreement"; the reference in section 60.1 to paragraph
60(b) stops there. Section 60.1 does not bring in from para
graph 60(b) the words "as alimony or other allowance payable
on a periodic basis for the maintenance of ... ." There would,
otherwise, be no reason in it for specific reference to "providing
for the periodic payment of an amount ... to or for the benefit
of his ... former spouse ...." If the legislators had intended to
place in section 60.1 the restrictions the Federal Court of
Appeal found they had in mind when paragraph 60(b) was
enacted, then they could have easily said so and would have
said so. The Crown's argument that the amounts were not at
the former wife's complete disposition also fails. It would 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.
R. v. Pascoe [1976] 1 F.C. 372, discussed. Gagnon v. The
Queen [1981] 1 F.C. 249, referred to. Attorney General of
Canada v. Weaver [1976] 1 F.C. 423, referred to.
INCOME tax appeal.
COUNSEL:
Jeanne Watchuk for plaintiff.
Elko B. Kroon for defendant.
SOLICITORS:
Deputy Attorney General of Canada for
plaintiff.
Elko B. Kroon, North Vancouver, for
defendant.
The following are the reasons for judgment
rendered in English by
COLLIER J.: The defendant and his former wife
were divorced on March 20, 1975. The decree nisi
of the Supreme Court of British Columbia incor
porated the terms of a maintenance agreement
between the defendant and his wife. Pursuant to
that decree, and the incorporated agreement, the
defendant was required to make certain payments,
as maintenance, on behalf of his wife. He did so.
For his 1975 taxation year he claimed a deduction
of $1,256.20.
The Minister of National Revenue disallowed
his claim.
The defendant appealed to the Tax Review
Board. The Assistant Chairman allowed the
appeal, holding the payments made by the defend
ant to be deductible'. This appeal by the plaintiff
followed.
The real issue here is as to the interpretation to
be given to section 60.1 of the Income Tax Act in
the light of the well-known case of The Queen v.
Pascoe 2 .
Section 60.1, and a companion section, 56.1,
were enacted by S.C. 1974-75-76, c. 26 (see sec-
' [1978] C.T.C. 3144.
2 [1976] 1 F.C. 372 (F.C.A.).
tion 31 and section 28). Those new sections were
assented to on March 13, 1975.
At the time the new sections were enacted the
Pascoe case was on its way through the divisions of
this Court. The taxation years there involved were
1969 and 1971. Sections 56.1 and 60.1 had no
application and, accordingly, were not considered
by the Federal Court of Appeal. The issue in the
Pascoe case was as to the deductibility of certain
amounts paid by the taxpayer to his former wife.
By the decree nisi, the husband was ordered to pay
all medical, hospital and dental accounts on behalf
of his wife and children, as well as all educational
expenses for the children. Pascoe sought, pursuant
to paragraph 60(b) of the Income Tax Act 3 , to
deduct those amounts. That paragraph is as
follows:
Subdivision e
Deductions in Computing Income
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
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;
The Court of Appeal gave, what has been said
to be, a restrictive interpretation to paragraph
60(b), formerly paragraph (1 1)(1) (d). The Court
said, at page 374:
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)(l). 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
3 R.S.C. 1952, c. 148, as amended by S.C. 1970-71-72, c. 63
(the "new" Act).
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.
I turn now to the facts of this case. The decree
nisi provided that a duplex in the municipality of
Matsqui, British Columbia should be transferred
to joint tenancy in the names of the defendant and
his former wife. The defendant agreed to
... make all payments on the mortgage as they become due and
payable, and will not further encumber the duplex property. He
will also maintain the duplex in good condition at his expense,
and pay all the land taxes, sewer rates, water rates and
cablevision levy as they fall due. None of the foregoing
expenses will be charged to Mrs. Bryce and Mr. Bryce will save
her harmless therefrom.
His former wife agreed to:
... forego any claim for monthly support from the Petitioner
(Respondent by Counter-Petition) other than that provided by
his paying for her benefit one-half the monthly instalments for
mortgage, land taxes, water rates, cablevision levy, and mainte
nance in respect of the said duplex.
The defendant, in 1975, paid the following:
Mortgage $2,148.00
Taxes 655.99
Water & Sewer 151.50
Cablevision 59.40
$3,014. 89
One-half of those amounts were paid for the ben
efit of the defendant's former wife. It was agreed
by the parties that, for the taxation year 1975 and
if the defendant is entitled to any deduction at all,
the sum of $1,256.20 is the amount in issue.
I go back to the Pascoe decision. If, in this case,
section 60.1 and section 56.1 are put aside, and
only paragraph 60(b) is considered, then the
amounts paid by the defendant Bryce for the
benefit of his wife would not be deductible. They
were, in my view, limited predetermined sums of
money. But they were payable to third parties, not
to the former wife. The allowance was not, as
required by the Pascoe decision, " . at the com
plete disposition of the [wife] who is not required
to account for it". The amounts were not sums
".. . allowed to the recipient to be applied in ...
her discretion to certain kinds of expense".
It was, in argument, conceded by counsel for the
Crown that the test of "periodicity", as set out in
the Pascoe judgment, had been met in this case. In
paragraph 5 of the maintenance agreement, incor
porated into the decree nisi, there is reference to
the payment of the monthly instalments for mort
gage, land taxes, water rates, cablevision and
maintenance.
The question, then, is to the effect to be given to
the additions, made in 1975, to the Income Tax
Act.
I set out the enacting provisions in respect of
section 60.1:
31. (1) The said Act is further amended by adding thereto,
immediately after section 60 thereof, the following section:
"60.1 Where, after May 6, 1974, a decree, order, judg
ment or written agreement described in paragraph 60(b) 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 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."
(2) This section is applicable in respect of amounts paid after
May 6, 1974.
I reproduce here paragraph 56(1)(b), as it stood
when the new Act came into force and as it was at
all times material in this case, plus the enacting
provisions of section 56.1:
Subdivision d
Other Sources of Income
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;
28. (1) The said Act is further amended by adding thereto,
immediately after section 56 thereof, the following section:
"56.1 Where, after May 6, 1974, a decree, order, judg
ment 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 remain
der of the year in which the amount was paid."
(2) This section is applicable in respect of amounts paid after
May 6, 1974.
I note, at the outset, that section 60.1 does not
in words provide for a deduction. I contrast that
with paragraph 60(b). But section 60.1 is part
of Subdivision e—"Deductions in Computing
Income".
Similar comments apply to paragraph 56(1)(b)
and section 56.1. The latter section does not, in
words, provide the amounts shall be included in
the computation of income of the taxpayer to
whom, or for whose benefit, they were paid. But
the section is part of Subdivision d—"Other
Sources of Income".
The whole intent of the legislation, including the
1975 enactments, when all are read together,
appears to be this. Alimony or maintenance pay
ments, or allowances, made in accordance with the
description in the statute, are deductible by the
payor spouse or former spouse. On the other hand,
the recipient, or person for whose benefit the pay
ments, or allowances, were made, is taxed on the
amounts so paid.
What effect, in this case, is to be given to section
60.1? It, and section 56.1, are, as I view them,
poorly drafted provisions. But it is my function to
try and interpret them.
The argument put forward by the Crown is that
the requirements for deductibility set out in the
Pascoe decision apply equally to the amounts paid
to or for the benefit of a spouse or children pursu
ant to section 60.1: the amounts paid must be
limited, predetermined sums; but while the decree
or agreement may permit them to be paid to third
persons for the benefit of the spouse, former
spouse or children, the control over the actual
disposition of those amounts must remain in the
person or persons for whose benefit payments are
made; in other words, even though Mr. Bryce
made the payments, as required by the incorpo
rated separation agreement, to the mortgagor, and
others, for the benefit of his former wife, she must,
for them to be deductible by the defendant, have
had complete discretion as to whether they would
actually be applied in the manner contemplated.
To put the Crown's argument another way: the
post-May 6, 1974 ". .. decree, order, judgment or
written agreement described in para. 60(1)(b) ..."
must be of the quality and kind defined in Pascoe;
the allowance must be of a limited, predetermined
sum which is at the complete disposition of the
recipient or of the person for whose benefit it is
paid; the decree or agreement must also, itself,
provide the allowance be paid at fixed recurring
intervals of time. The only effect of section 60.1, it
is said, is to make the allowances deductible, if
paid to third parties for the benefit of a spouse or
former spouse, or children, rather than directly to
the spouse, former spouse or children.
I cannot read the 1975 legislation in that way. It
is both illogical and unwarranted, to my mind, to
incorporate the Pascoe strictures into section 60.1.
The decree, order, judgment or written agree
ment referred to in section 60.1 is, in my opinion,
the "... decree, order or judgment of a competent
tribunal or pursuant to a written agreement ..." in
the first four lines of paragraph 60(b). The refer
ence in section 60.1 to paragraph 60(b), as I see it,
stops there. Section 60.1 does not, as contended by
the Crown, bring in, from paragraph 60(b), the
words "... as alimony or other allowance payable
on a periodic basis for the maintenance of ...".
There would, otherwise, be no reason, in section
60.1, for specific reference to "providing for the
periodic payment of an amount ... to or for the
benefit of his ... former spouse ...." [Emphasis
added.]
Paragraph 60(b) deals with amounts paid as
alimony or other allowance for maintenance, to the
recipient, children of the marriage, or both. Sec
tion 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 agree
ment, periodically paid to, or for the benefit of, the
taxpayer's spouse, former spouse or children of the
marriage.
There are other differences between paragraph
60(b) and section 60.1. In the former, payments
for the maintenance of the children of the mar
riage are deductible even though the children may
not be in the custody of the former spouse. In the
latter, any amounts paid for the benefit of the
children shall be deemed to have been made to the
spouse or former spouse, only if the latter has
custody of the children. In paragraph 60(b), the
payor must be living apart from his spouse or
former spouse and be separated pursuant to a
divorce, judicial separation or written separation
agreement. The stipulation in section 60.1 is
merely that the payor must be living apart from
his spouse or former spouse.
If the legislators had intended to place in section
60.1 the restrictions the Federal Court of Appeal
found they had in mind when paragraph 60(b) was
enacted, then the legislators could easily have said
so, and in my view, would have said so.
I shall digress slightly.
The Crown contended, based on the Pascoe
ruling, that the mortgage and other payments
made here, were not, in the incorporated mainte
nance agreement, "limited predetermined sums". I
do not accept that argument. They were easily
limited and predetermined by the parties. The
monthly mortgage payments were ascertainable
and determinable, in advance at any time. The
same comments apply, in my view, to the monthly
amounts payable for land taxes, water rates and
cablevision. There was no claim, advanced by the
taxpayer defendant, for deductions in respect of
maintenance of the duplex. For similar reasoning,
see Gagnon v. The Queen' and the dissenting
reasons, on the facts, of Urie J. in Attorney Gener-
4 [1981] 1 F.C. 249. Walsh J. dealt only with paragraphs
60(b) and (c). Apparently, section 60.1 was not relied on.
al of Canada v. Weavers.
I go now to the Crown's final submission: even if
the Bryce payments were, by the incorporated
maintenance agreement, limited, predetermined
sums payable on a periodic basis, they were not
unencumbered, as per Pascoe, as to Mrs. Bryce's
right to do whatever she pleased with them.
I cannot agree with that interpretation of section
60.1.
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 stipu
lated in the document. It would, it seems to me, be
inconsistent for the legislators to endorse mainte
nance agreements 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 destination and purpose of the benefit
payments.
For all of the above reasons, I dismiss the
plaintiff's action. The judgment of the Assistant
Chairman is upheld. His ruling that the assess
ment be referred back to the Minister of National
Revenue with a direction that the defendant is, for
his 1975 taxation year, entitled to a deduction
from income of $1,256.20, is confirmed.
I assume the amount of tax in controversy here
does not exceed $2,500. If that is so, then subsec
tion 178(2) of the Income Tax Act and The Queen
v. Creamer [1977] 2 F.C. 195 apply. If counsel
agree on this point, please advise the Registry and
I shall include the necessary cost directions in the
pronouncements.
5 [1976] 1 F.C. 423 at pp. 433-435.
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.