http://decisions.fca-caf.gc.ca/en/2013/2013fca181/2013fca181.html 
Chadwick v. The Queen[1] (July 10, 2013) involved the deduction of child support payments made pursuant to a separation agreement entered into before May 1, 1997. The facts are straightforward:
[2] The ITA was amended in 1997 to neutralize the tax treatment of child support payments. Prior to the amendments, child support payments were generally includable in the income of the recipient and deductible from the income of the payer. Following the amendments, such payments are neither includable in nor deductible from the income of either party. The ITA includes transitional rules to cover situations such as that before us.
[3] The taxpayer and his ex-spouse entered into an inter-spousal contract (“the Agreement”) in September 1996, specifying that the taxpayer would pay $450 per month to his ex-spouse in support of their two children. The couple petitioned for divorce in 1997 and, in uncontested and on-consent proceedings in 1998, a divorce judgment (“the Divorce Judgment”) was issued that incorporated, for the most part, the terms of the Agreement, including the monthly child support payment amount of $450. The Agreement was thus entered into prior to the amendments, and the Divorce Judgment was issued following the amendments.
[4] While a child support amount payable under an agreement or order made prior to May 1997 is generally subject to the old regime, there are four exceptions to this rule:
Holbrook v. Canada, 2007 FCA 145 at paragraph 8; subsection 56.1(4) of the ITA (definition of “commencement day”). As set out in
Holbrook, the exceptions essentially attribute a post-May 1997 commencement day to a pre-May 1997 agreement or order when: (i) the parties file a joint election; (ii) the pre-May 1997 agreement or order is varied; (iii) another agreement or order is made after April 1997, the effect of which is to change the total child support amounts payable; or (iv) the pre-May 1997 agreement or order specifies a particular day after April 1997 as the commencement day of the agreement or order.
The Tax Court Judge found that the payments were not deductible by the appellant because the Divorce Judgment resulted in a loss of the grandfathering protection:[2]
[23] The Divorce Judgment does not order or state that the support obligation created by the Agreement was continued or was incorporated into it. In fact the language of the Divorce Judgment supports the opposite view that the support obligation was a new one. Paragraph 2(c) of the Divorce Judgment stated that “the first of such payments [is] to be paid on the first day of July, A.D. 1998”. The Federal Court of Appeal in Holbrook noted at paragraph 14 of that decision that if an agreement or order was intended to recognize and continue the obligations created by a previous order that there would be no need to stipulate that monthly payments under the agreement or order would commence on a certain date.
[24] The provision for child support in the Divorce Judgment differs in at least one significant respect, as well, from the support obligation under the Agreement. The Agreement provided that the support payments would continue until the children reached the age of sixteen (16) years, or over if they were unable to withdraw from the ex-spouse’s care due to education, illness or disability. The Divorce Judgment ordered that the support payments continue “for so long as the children remain children within the meaning of the Divorce Act.” Under section 2 of the
Divorce Act a child remains a “child of the marriage” until he or she reaches the age of majority as determined by the laws of the province where the child ordinarily resides and has not withdrawn from the parent’s charge, or is over the age of majority but is unable to withdraw from their charge.
[25] Under section 2 of the Saskatchewan
Age of Majority Act, R.S.S. 1978 c. A‑6 the age of majority in that province is 18 years.
[26] Therefore, support was payable under the Divorce Judgment for two years longer than under the Agreement.
[27] In addition, the Divorce Judgment contained no limitation similar to the one found in paragraph 1(c)[3] of the Agreement that the amount of support was contingent on the Appellant’s ex-spouse maintaining full-time employment.
The Court of Appeal rejected the Tax Court’s conclusion:
[7] On the specific facts of this case, the parties demonstrated a clear intention to incorporate the provisions of their Agreement in the uncontested and on-consent Divorce Judgment that followed. The fact that a relatively minor item was not in the Divorce Judgment and that the length of the obligation to pay child support was prolonged due to the operation of the
Divorce Act is not, in my view, sufficient to negate the clear intention of the parties. In this regard, the findings in
Warbinek v. Canada, 2008 FCA 276 and Whelan v. Canada, 2006 FCA 384 support both this analysis and this conclusion. I thus find that the judge erred in holding that the Divorce Judgment was intended to vary or replace the Agreement.
The Court of Appeal’s decision appears to reject a narrow, technical interpretation of the grandfathering rules for child support payments in favour of an approach emphasizing the centrality of the intentions of the parties. This is a welcome development in the law in this area.
[1] 2013 FCA 181.
[2] 2012 TCC 311.
[3] c. The Parties acknowledge that the aforesaid payment of maintenance is contingent on the Wife retaining full time employment, as she currently has. In the event of the loss of employment by the Wife, through illness or disability, the Parties agree to review the amount of maintenance required to meet the children’s month to month needs.