Ross v. R. – TCC: Five payments by lobster fisherman to former spouse were deductible as periodic spousal support payments

Ross v. R. – TCC:  Five payments by lobster fisherman to former spouse were deductible as periodic spousal support payments

Ross v. The Queen (November 1, 2018 – 2018 TCC 215, Bocock J.).

Précis:   Mr. Ross, a lobster fisherman, agreed to make 5 payments to his former spouse:

$20,000.00 upon signing a separation agreement on November 26, 2015, a transfer in kind of a 2011 Jeep worth $22,000.00 in December 2015 and 3 further payments by cheque: $4,000.00 on December 8, 2016, $3,000.00 on December 16, 2016 and $3,000.00 on December 31, 2016. [Para. [2]]

CRA allowed the last three payments made in 2016 but denied the 2015 payments on the basis that they were not periodic payments for the maintenance of a former spouse.  Bocock J. allowed the appeal on the basis that the payments were periodic and tailored to meet the taxpayer’s occupation as a lobster fisherman where the bulk of his income was earned in late fall and early winter with no income earned in the balance of the year.  Mr. Ross was awarded costs of $150.00.

Decision:   The Court held that CRA’s interpretation of “periodic” was too narrow and did not recognize the taxpayer’s fact situation:

[4]  Mr. Ross testified at the hearing. Mr. Ross is a lobster fisherman. The lobster fishery is seasonally intensive as to both effort and income. More conventional monthly payments would have been difficult for Mr. Ross given the cash flow constraints of receiving the bulk of his income from the business in the late fall, early winter and thereafter no or little income during the other 3 seasons. These circumstances caused Mr. Ross, through his solicitor, to structure his support payments in larger amounts in the last quarter of the year. No doubt this structure was adopted to prevent missed payments in spring, summer and fall and, should that occur, the commencement of enforcement proceedings by his ex-spouse. The actual cheques described the payments as “spousal support” payments.

[18]  The foregoing factors are intended to inform, but in the words of McKimmon, “not be exhaustive”. After such an analysis based upon the circumstances, the factors are fairly evenly aside. In ultimately deciding this appeal, the Court is guided by the particularity of the following circumstances of the spouses.

[19]  The payments were paid in lump sums specifically to accommodate the seasonal ability of Mr. Ross, the payor, to pay without default or tardiness. The Court heard and fully expects that if Mr. Ross had been employed in a weekly paying job, the payments would have been more conventional monthly payments. Secondly, the payment of the motor vehicle was specifically intended to allow Mr. Ross’s ex-spouse to have the ability to travel routinely to undertake the normal tasks of daily life. This was not a transfer of a recreational property, piece of art or an heirloom piece of furniture; it did not represent a lump sum capital payment in the context, but support to assist in daily transportation. There were multiple payments and all, without exception, coincided on or near the predictive payments dates of Mr. Ross’s personal and seasonal (not periodic) cash flow.

[20]  Finally, Mr. Ross raised before the Court the CRA’s interpretation on its website of “periodic payments”. As explained to Mr. Ross, the CRA’s view is not binding on this Court as the Tax Court has held on many occasions. However, it is evidence of how the CRA interprets the provision. Mr. Ross produced a screen shot from his smart phone of the CRA’s website providing the Agency’s explanation of “periodic”. Mr. Ross indicates that wording influenced his solicitor’s choice of wording within the spousal support section. The wording is as follows:

Periodic payments – the term “periodic” means there is a series of payments, but does not necessarily mean “frequent”. For example, the payments could be made monthly, quarterly, semi-annually, or annually. The court order or written agreement must set out the timing of the payments. Only a new order or agreement can change the payment schedule.

[21]  In reviewing this interpretation, the Court notes, that in respect of Mr. Ross’s own situation, the following:

(i) there was a series of payments;

(ii) they were “not” necessarily frequent;

(iii) they were made on some combination of an annual or semi-annual basis; and

(iv) the written agreement set out the timing of the payments.

[22]  It would appear the CRA was slightly unfocused in recognizing this compliance. That blurriness arose from the odd combination of seasonally necessary payments and a payment-in-kind from the same taxpayer. However, as in McKimmon, those specific circumstances do not render such payments lump sum capital amounts where and once the other factors are analyzed.

Thus the Court allowed the appeal and awarded costs of $150.00 to Mr. Ross.