A-105-83
The Queen (Appellant)
v.
Barbara D. Sills (formerly Barbara D. LaBrash)
(Respondent)
Court of Appeal, Heald, Urie and Stone JJ.—
Vancouver, November 28 and 29, 1984.
Income tax — Income calculation — Maintenance payments
— Appeal from Trial Division decision dismissing appeal
from Tax Review Board — Separation agreement requiring
monthly payments for maintenance of respondent and depen
dent children — Arrears of $2,000 accumulating by end of
1975 — Three payments of $1,000 made in 1976 — Respond
ent not including $3,000 in income in 1976 — Tax Review
Board concluding amounts included in income "pursuant to
s. 56(1)(b)" to be received exactly according to order —
Appeal allowed — Four requirements of s. 56(1)(b) met —
$3,000 paid to carry out terms of separation agreement —
Money payable on periodic (monthly) basis — Payments to
satisfy alimony and maintenance claims — Respondent living
apart from spouse under terms of separation agreement
requiring payment at time payment made and throughout rest
of year — Character of payments not changing because not
made on time — The Minister of National Revenue v. Arm-
strong, 1 . 1956] S.C.R. 446; 56 DTC 1044, where lump sum not
paid pursuant to divorce decree, but in lieu thereof, distin
guished — Allowance contemplated by s. 56(1)(b) including all
amounts paid under agreement whenever paid since amount
determined in advance, and at complete disposition of recipient
once paid — Income Tax Act, S.C. 1970-71-72, c. 63, ss.
56(1)(b), 178(2)(a) (as am. by S.C. 1976-77, c. 4, s. 64).
CASES JUDICIALLY CONSIDERED
DISTINGUISHED:
The Minister of National Revenue v. Armstrong, [ 1956]
S.C.R. 446; 56 DTC 1044; Trottier v. Minister of Na
tional Revenue, [1968] S.C.R. 728; 68 DTC 5216.
REFERRED TO:
The Queen v. Pascoe, M. (1975), 75 DTC 5427 (F.C.A.).
COUNSEL:
I. E. Lloyd for appellant.
S. J. Ayala for respondent.
SOLICITORS:
Deputy Attorney General of Canada for
appellant.
Colvin & Co., Vancouver, for respondent.
The following are the reasons for judgment
delivered orally in English by
HEALD J.: This is an appeal from a decision of
the Trial Division [judgment dated December 29,
1982, T-4471-80, not reported] which dismissed
the appellant's (plaintiff's) appeal from a decision
of the Tax Review Board [Sills, B. D. v. M.N.R.,
80 DTC 1436] with respect to the respondent's
1976 taxation year. The sole issue in the appeal is
whether the amount of $3,000 received by the
respondent in the 1976 taxation year from her
former husband, Paul Douglas LaBrash, was a
payment of an allowance payable on a periodic
basis for the maintenance of the respondent, the
children of the marriage, or both the respondent
and the children of the marriage, and whether it
was made pursuant to the written separation
agreement entered into between the respondent
and her former husband within the meaning of
paragraph 56(1)(b) of the Income Tax Act, S.C.
1970-71-72, c. 63 as amended.
The relevant facts are not in issue since a state
ment of agreed facts was filed in the Trial Divi
sion. The respondent was married to Paul Douglas
LaBrash in 1967. A separation agreement was
entered into by the parties on November 1, 1974.
At that time there were two dependent children of
the marriage. Paragraph 6 provided for payment
of the sum of $6,200 and the wife acknowledged
receipt of that sum at the time the agreement was
signed. Paragraph 7 required LaBrash to pay to
the respondent on December 1, 1974, and on the
first day of each and every month following,
during the joint lives of both of them: (a) the sum
of one hundred dollars for her maintenance until
she remarries or enters into a living arrangement
with a man other than her husband; and (b) a
further sum of one hundred dollars for each
dependent child.
In July 1975, the respondent entered into a
living arrangement with another man, advising
LaBrash of this fact. The respondent was divorced
from LaBrash in June of 1977, at which time the
separation agreement was incorporated into the
decree nisi of divorce. Accordingly, the parties
agree that under the terms of the agreement, the
amount payable by LaBrash to the respondent was
$300 per month until July of 1975 and thereafter
the sum of $200 per month for the maintenance of
the two dependent children. Although LaBrash
paid certain sums of money to the respondent in
1975 on the basis of the separation agreement,
arrears in the sum of $2,000 had accumulated by
the end of 1975. The respondent received the
following payments from LaBrash in the 1976
taxation year:
February, 1976 $1,000
April, 1976 1,000
December, 1976 1,000
At the time such payments were received by the
respondent in 1976, the arrears owing under the
separation agreement always exceeded the monies
received. At the end of 1976, the arrears outstand
ing amounted to $1,400. Throughout 1975 and
1976 the. respondent attempted to collect the
arrears, either directly or through her solicitor.
Prior to the divorce proceedings in 1977 all of the
arrears due under the separation agreement were
paid up by LaBrash.
In filing her return for the 1976 taxation year,
the respondent did not include the sum of $3,000
referred to supra and received from LaBrash, in
her income for that year. However, LaBrash
claimed a deduction of $3,000 from his income for
the 1976 taxation year with regard to alimony
payments made by him to the respondent. The
Minister reassessed the respondent, including an
amount of $2,700 in the respondent's income for
the 1976 taxation year.' The Tax Review Board
allowed the respondent's appeal and the Trial
Division confirmed that decision.
' The assessment under review added the sum of $2,700 to
the respondent's income. However, in this Court the parties
agreed that LaBrash had paid the respondent $3,000 in the
1976 taxation year.
Paragraph 56(1)(b) 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) 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;
The Tax Review Board concluded [at page
1438] that:
... amounts to be included in income by virtue of section
56(1)(b) of the Act must be received exactly according to the
terms in the relevant order or agreement, and such terms
must include details of the regularized pattern of payment
agreed upon.
The learned Trial Judge, after reciting paragraph
56(1)(b) and paragraph 7 of the separation agree
ment, observed:
Since all other conditions of paragraph 56(1)(b) are obviously
present, the only issue is whether the payments made in the
amounts and at the times indicated can be said to have been
made pursuant to the separation agreement. Obviously, had the
payments been made precisely in the amounts and at the times
specified in the agreement, they would fall squarely within
paragraph 56(1)(b). Jurisprudence makes it equally clear that
in situations where the obligation springs from such an agree
ment but is met in one lump sum payment in full settlement of
obligations and all arrears, the payment is not considered to
have been made "pursuant to the agreement" and is therefore
not covered by paragraph 56(1)(b). (Minister of National
Revenue v. Armstrong, [1956] S.C.R. 446, 56 DTC 1044; revg.
[1954] Ex.C.R. 529, 54 DTC 1104; affg. (1952), 52 DTC 414
(Income Tax Appeal Board).)
In the present case, the application to pay is imposed by an
agreement which is caught by paragraph 56(1)(b), but the
payments are in lump sums which are not referable to the terms
of the agreement and are not made as a final settlement. The
Court must therefore determine, as a question of fact, whether
the payments bear sufficiently close relationship with the terms
of the agreement to warrant the finding that they are made
pursuant to the agreement.
Returning then to the facts of the present case, the 1974
agreement calls for payments of $300 per month while the
situation remains as it was at the time of the agreement. The
obligation to make the 1976 payments obviously springs from
the 1974 agreement, but there is otherwise no relationship
whatever between the terms of the agreement and these pay
ments which were made at random times during 1976, and in
varying amounts. I therefore confirm the disposition made in
this matter by the Tax Review Board.
I have no hesitation in concluding that both the
Tax Review Board and the learned Trial Judge
were in error in their interpretation and applica
tion of the provisions of paragraph 56(1)(b) to the
facts in this case. An analysis of the paragraph
reveals the following requirements (when applied
to these facts):
(A) the amounts received by the taxpayer in the
year under review must be received pursuant to
the terms of the separation agreement;
(B) they must be received as alimony or other
allowance payable on a periodic basis;
(C) they must be payable for the maintenance
of the recipient thereof, children of the marriage
or both the recipient and the children; and
(D) the recipient must be living apart from and
be 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 remainder of the
year.
I am satisfied that all of the requirements of the
paragraph, as enumerated supra, were met on the
facts of this case. Dealing now with the four
essential requirements set forth supra:
Requirements (A) and (B)
The Shorter Oxford English Dictionary defines
"pursuant", inter alia, as "in accordance with".
The Fifth Edition of Black's Law Dictionary
defines "pursuant", inter alia, as "To execute or
carry out in accordance with or by reason of
something." It also defines "pursuant to" inter
alia, as follows: "Pursuant to" means "in the
course of carrying out: in conformance to or agree
ment with: according to". On these facts, the
$3,000 received by the respondent from LaBrash
was clearly paid by him and received by her to
carry out the terms of the separation agreement.
Some of the money was payable to the respondent
as alimony, the remainder was payable to her as
maintenance for the dependent children. All of it
was payable on a monthly basis as stipulated in the
separation agreement. Where the Trial Judge
erred, in my view, was in not having due regard to
the use of the word "payable" in the paragraph. So
long as the agreement provides that the monies are
payable on a periodic basis, the requirement of the
paragraph is met. The payments do not change in
character merely because they are not made on
time. The learned Tax Review Board member
made the same error, in my view, when he said
that the amounts to be included in income "must
be received exactly according to the terms of the
agreement". The paragraph does not say that. If
the learned Tax Review Board member and the
learned Trial Judge are right, then any monthly
payment made to the respondent on the second day
of the month for which it is due, for example,
would not be taxable in the hands of the respon
dent. This is surely not a reasonable or a proper
interpretation of the paragraph.
Requirements (C) and (D)
There can be no argument that the monies paid
in 1976 were, under the agreement, payable par
tially in satisfaction of her alimony claim prior to
July of 1975 and partially in satisfaction of the
claim for maintenance of the dependent children.
Likewise, it is agreed that the respondent was, in
1976, living apart from her spouse under the terms
of a separation agreement which agreement
required her spouse to make the payments at the
time she received them and throughout the
remainder of 1976. However, respondent's counsel
relies on the Armstrong case supra, a decision of
the Supreme Court of Canada [The Minister of
National Revenue v. Armstrong, [1956] S.C.R.
446; 56 DTC 1044]. She cites from the reasons of
the Chief Justice at page 447 S.C.R.; at page 1045
DTC where he stated the proper test for the
application of the predecessor section to paragraph
56(1)(b) to be as follows:
The test is whether it was paid in pursuance of a decree, order
or judgment and not whether it was paid by reason of a legal
obligation imposed or undertaken. There was no obligation on
the part of the respondent to pay, under the decree, a lump sum
in lieu of the monthly sums directed thereby to be paid.
[Emphasis added.]
There is a clear distinction between the facts in
Armstrong and those in the present case. In Arm-
strong the respondent was divorced by his wife in
1948. The divorce decree provided for monthly
$100 payments to the wife for maintenance of
their daughter until she became sixteen. The pay
ments so ordered were made until the summer of
1950 when the wife accepted a lump sum settle
ment of $4,000 in full settlement of all amounts
payable in the future. Thus clearly the $4,000 was
not paid pursuant to the divorce decree but in lieu
thereof . However, in the case at bar, all monies
were paid to carry out the , terms of the separation
agreement. The consequence and result of these
payments was not to finally release the husband
from his liabilities to his wife and children under
the separation agreement as was the case in Arm-
strong and in Trottier, 2 another decision of the
Supreme Court of Canada where the principle
enunciated in Armstrong was followed.
Counsel for the respondent also submitted that
since the payments received in 1976 were on
account of the arrears owing, they could not be
said to be an "allowance ... for the maintenance
of....", the respondent and her children as
referred to in paragraph 56(1)(b) and therefore
they should be treated as payments reimbursing
the respondent for the maintenance of herself and
the children for the earlier period when the pay
ments were due. One of the problems with this
submission is that there is no evidence on this
record of any reimbursement for actual expenses.
Furthermore, it seems clear that the kind of allow
ance contemplated by paragraph 56(1)(b) would
include any and all amounts paid under the agree
2 Trottier v. Minister of National Revenue, [1968] S.C.R.
728, at pp. 732-734; 68 DTC 5216, at p. 5219.
ment whenever they are paid and received since
the amount is determined in advance and, once
paid, it is at the complete disposition of the recipi
ent who is not required to account for it.' Accord
ingly I see no merit in this submission.
For all of the above reasons I would allow the
appeal, set aside the decision of the Trial Division
and restore the reassessment of the Minister of
National Revenue which added the amount of
$2,700 to the respondent's income for the 1976
taxation year. Since counsel for the appellant
indicated that the Minister has agreed to pay all
costs, both here and below as contemplated by
paragraph 178(2)(a) [as am. by S.C. 1976-77, c.
4, s. 64], of the Income Tax Act, I would order,
pursuant to paragraph 178(2)(a), that the Minis
ter pay all reasonable and proper costs of the
respondent in connection with this appeal.
URIE J.: I agree.
STONE J.: I agree.
' For a similar view, see The Queen v. Pascoe, M. (1975), 75
DTC 5427 (F.C.A.), at p. 5428.
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.