http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/127044/index.do
Blue v. The Queen (December 3, 2015 – 2015 TCC 304, D’Auray J.).
Précis: Mr. Blue and his ex-wife agreed to her receiving $12,000 per annum for 5 years on the breakup of their marriage. Originally the payments were to be monthly but that was changed to one annual payment of $12,000. When he sought to deduct the first payment in 2013 CRA denied the deduction on the basis that it was not a payment for maintenance but rather a non-deductible capital payment.
The Tax Court reviewed the factors established by the Federal Court of Appeal decision in McKimmon and concluded that, on balance, the payments had the character of maintenance and allowed the appeal. There was no order as to costs since this was an informal procedure appeal.
Decision: The facts were not at issue:
[2] The facts are straightforward. The appellant and his spouse started living together in 1994 and married on August 1, 1998.
[3] In November 2012, the appellant and his spouse separated and have since been living apart.
[4] A Petition for Divorce was filed on February 6, 2013, before the Court of Queen’s Bench of Saskatchewan (the “Saskatchewan Court”).
[5] On March 7, 2013, the Saskatchewan Court ordered interim support payments, whereby the appellant had to pay to his spouse support payments of $1,000 per month, commencing on April 1st, 2013 until September 1st, 2013.
[6] A divorce was granted by the Saskatchewan Court in December 2013. The appellant and his spouse entered into Minutes of Settlement, signed on December 18, 2013, whereby they agreed on spousal support payments and how assets would be divided. These Minutes of Settlement formed an integral part of the divorce decree rendered by the Saskatchewan Court.
[7] Before the divorce was granted, the appellant’s spouse had proposed spousal payments totalling $85,200 over seven years. As seen below, this was ultimately revised to $60,000 over five years. Paragraph 17 of the Minutes of Settlement set out the parameters of spousal support as follows:
SPOUSAL SUPPORT
17. The Respondent shall pay to the Petitioner a lump sum payment in the amount of $60,000.00 as full and final satisfaction of the Petitioner’s claim for spousal support. This payment shall be made in five (5) installments of $12,000.00 per annum commencing December 18th, 2013 and on December 1st each year thereafter until the final payment is made on December 1, 2017.
The taxpayer’s position was that the payments were for maintenance of his ex-wife. The Crown contended that they were capital in nature and therefore not deductible.
The leading case in this area, The Queen v McKimmon, [1990] 1 CTC 109, [1990] 1FC 600 (FCA) listed 8 non-exhaustive tests for determining whether a payment had the character of maintenance. Justice D’Auray carefully goes through all of those factors and concludes, on balance, that the payments were for the maintenance of Mr. Blue’s ex-wife:
[31] Except for the eighth factor that is not in favour of the appellant and the sixth factor that is neutral, all the other factors established by the Federal Court of Appeal in McKimmon indicate that the support payments were for the maintenance of the appellant.
[32] I find that the release does not in this appeal prevent the deduction of the appellant’s payment to his former spouse. McKimmon states that such a release is only one consideration among eight (and potentially more, since the list of factors is non-exhaustive) that the payment is a capital in nature. McKimmon does not state that any payments made pursuant to an agreement in which there is a release will be non-deductible capital payments.
[33] At the end of the day, the definition of “support amount” asks whether the payments were made for the maintenance of the recipient. The factors in McKimmon aid the Court in examining the true nature of the payments to determine whether they were so made. Applying the factors in McKimmon to the facts of the case, I conclude that the payment was made for the maintenance of the appellant’s former spouse. The requirements found in the definition of “support amount” are met. The payments are an allowance for maintenance, paid on a periodic basis. The recipients are living separate and apart. The order was made by a competent tribunal. The recipient had complete discretion over the payments she received from the appellant.
[34] The payment made by the appellant, with respect to his 2013 taxation year, to his former spouse is therefore deductible.
As a result the appeal was allowed. There was no award of costs since this was an informal procedure appeal.