A-89-75
The Queen (Appellant)
v.
Morton Pascoe (Respondent)
Court of Appeal, Pratte and Le Dain JJ. and
MacKay D.J.—Toronto, October 27 and 31, 1975.
Income tax—Deductions—Separation agreement—Whether
sums paid for educational and medical expenses of children
deductible—Income Tax Act, R.S.C. 1952, c. 148, s. 11.
Respondent had entered into a separation agreement with his
wife, under which he was to provide all educational and medi
cal expenses of the children. These provisions later were incor
porated into the divorce order. The Trial Division held that
only the educational expenses were deductible from income tax.
Held, allowing the appeal, and dismissing the cross-appeal,
neither sum is deductible. Such payments did not constitute
payments of allowances within the meaning of section 11(1)(l).
An allowance is a limited predetermined sum of money paid to
allow the recipient to provide for certain kinds of expense. A
payment in satisfaction of an obligation to indemnify someone,
or defray actual expenses, is not an allowance. There is not the
same discretion in applying the sum as with an allowance. Also,
payment here was not periodic as required by the section.
Neither the separation agreement nor the decree nisi stipulated
payment at fixed recurring intervals. The periodicity required
by the Act refers to the manner in which the allowance is
payable, not to the manner in which it is in fact paid.
INCOME tax appeal.
COUNSEL:
M. J. Bonner for appellant.
L. Colt for respondent.
SOLICITORS:
Deputy Attorney General of Canada for
appellant.
Muni Basman, Lorne Colt, Toronto, for
respondent.
The following are the reasons for judgment of
the Court delivered orally in English by
PRATTE J.: The only question raised by this
appeal is whether, in computing his income for the
1969, 1970 and 1971 taxation years, the respond-
ent was authorized to deduct certain sums that he
paid to his former wife.
On February 1, 1967, the respondent and his
wife entered into a separation agreement which
provided for the payment, by the respondent to his
wife, of fixed monthly allowances for her mainte
nance and that of their three children and, in
addition, contained the following stipulations:
14. THE Husband agrees to pay all medical, hospital and
dental accounts on behalf of the Wife and infant children of the
marriage for such period as they are entitled to maintenance
under this agreement and such accounts are to include all drugs
prescribed by a medical doctor.
15. THE Husband is to provide all educational expenses for
the infant children which shall include books, transportation
and tuition fees which said expenses shall include University,
College or post high school education (Teachers College; Ryer-
son Institute; Business College, etc.)
The respondent's marriage was later dissolved
by divorce. The decree nisi, dated October 31,
1969, read in part as follows:
AND THIS COURT DOTH FURTHER ORDER AND ADJUDGE that
the Respondent, Morton Gerrard Pascoe, do pay to the Peti
tioner for the support and maintenance of the said infant
children of the Petitioner and the Respondent, Morton Gerrard
Pascoe, namely, Paula Pascoe, Carolyn Pascoe, and Naomi
Pascoe as provided for in paragraphs 12, 13, 14 and 15, which
paragraphs read as follows:
The enumerated paragraphs of the separation
agreement were then quoted.
It is the deductibility of amounts paid by the
respondent under the above quoted portions of the
separation agreement and of the decree that is
here in question. The Trial Division held that the
sums paid by the respondent for the education of
his children were deductible but that the sums paid
for the medical expenses were not. From that
judgment there is both an appeal and a
cross-appeal.
The deductibility of amounts paid by a taxpayer
to his spouse or former spouse for the maintenance
of the spouse - and the children of the marriage is
governed by section 11(1) (1) which reads thus:
11. (1) Notwithstanding paragraphs (a), (b) and (h) of
subsection (1) of section 12, the following amounts may be
deducted in computing the income of a taxpayer for a taxation
year
(1) an amount paid by the taxpayer in the year, pursuant 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 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;
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 predeter
mined 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 satisfac
tion of an obligation to indemnify or reimburse
someone or to defray his or her actual expenses is
not an 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)(1). 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 noth
ing 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.
For these reasons, the appeal will be allowed
and the cross-appeal will be dismissed.
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.