Stevenson v. R. – TCC: Divorced taxpayer not entitled to non-refundable tax credits in respect of “net” support payments in respect of child of his former marriage

Stevenson v. R. – TCC:  Divorced taxpayer not entitled to non-refundable tax credits in respect of “net” support payments in respect of child of his former marriage

Stevenson v. The Queen (August 29, 2018 – 2018 TCC 176, Bocock J.).

Précis:   Mr. Stevenson paid support for the child of his former marriage.  The payments were netted against notional payments made by his former wife.  He claimed child tax credits which were denied by CRA.  His appeal to the Tax Court was dismissed without costs holding that the credits were not available in the case of “net” support payments.

Decision:   The case law in this area was quite clear and Justice Bocock really had no flexibility to allow the tax credits claimed:

[8]  In terms of overall jurisprudence, both this Court and the Federal Court of Appeal have interpreted the above subsections without much variance. The baseline logic is that utilization of the Guidelines constitutes a commencement point which evolves, through further considerations, to an agreement between the spouses regarding conclusive “support amount(s)”. Simple set-off does not make each distinct value a support amount under the Act: Contino v Leonelli-Contino, 2005 SCC 63 at paragraph 32. In this appeal, the calculations contained in sections 10 and 11 of the Agreement and sections 15 and 16 of the divorce judgment show a mathematical function entirely reflective of a set-off of two obligations resulting in one payment.

[9]  In Lawson, such was not factually the case. Justice Miller outlined three factual factors present which allowed him to accept oral testimony in aid of interpreting the parties’ oral agreement. Specifically, paragraph 28 summarizes the process undertaken (underscoring added):

[28] I find this interpretation is not an alteration of the contract, but is indeed a clarification by the very two parties to the contract, who wrote the contract. I further accept Mr. Lawson’s testimony that a strict adherence to the Guidelines would not simply yield $100 difference, but something further was at play, and that was the consequence of Ms. Lawson’s recognition of Mr. Lawson’s travel expenses. Finally, I also accept that the wording in the minutes of settlement, found acceptable by the CRA, does reflect the understanding of the Lawsons from the outset. In summary, where a separated couple rely on CRA commentary suggesting there can be one cheque for convenience sake, where the couple draft their agreement with the intention to create mutual requirements to pay, where the net payment is not based solely on the Guidelines but represents an obligation of one side to make payments towards travel expenses of the other and where a subsequent written agreement is accepted by the CRA while not altering the prior agreed-upon arrangement, I am prepared to interpret the separation agreement as creating two obligations and not simply a means of calculating one support payment. I am prepared, therefore, to allow the Appeal on the basis that there were two requirements to pay pursuant to their written separation agreement, which brings into effect section 118(5.1) of the Act and allows Mr. Lawson to claim the Tax Credits.

10]  Mr. Stevenson’s spouse was not required under the Agreement, or otherwise, to pay support payments in the form of a support amount to Mr. Stevenson: Cunningham v Her Majesty the Queen, 2012 TCC 279 at paragraph 14. There was no unilateral payment by Mrs. Stevenson to Mr. Stevenson on account of any other factor or input beyond or in variance of the Guidelines. As well, the support solely and unilaterally paid by Mr. Stevenson is not obfuscated by the two Guideline inputs to the mathematical functions: Verones v R., 2013 FCA 69 at paragraph 6. Similarly, subsection 118(5.1) stops and prevents the loss of the eligible amount, but only where both parents factually pay to the other an amount of child support: Verones, supra at paragraph 9.

[11]  A mandatory requirement for each parent to pay an amount reflected in a court order or formal agreement together with conclusive evidence of actual payment being made are necessary. The exception is where supplementary amounts are paid or expenses are credited by the recipient spouse which affect the amount paid beyond the Guideline inputs. As stated, this is factually not the case in Mr. Stevenson’s appeals. There was no payment by Mrs. Stevenson during split custody: Rabb v R., 2006 TCC 140. Actual payments in both directions did not occur: Ochitwa v HMQ, 2014 TCC 263. Lastly, there was no departure from the Guidelines values: Lawson, supra, at paragraph 28.

[12]  Although the CRA’s now retired bulletin may have directed the parties’ lawyers, the absence of some diversion from the Guideline amounts will not create two actual or factual payments from two input values. On that basis, the appeal is dismissed without costs.