https://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/365199/index.do
Bayrack v. The Queen (March 6, 2019 – 2019 TCC 53, Wong J.).
Précis: The taxpayer and his former spouse agreed to a consent order which provided that the taxpayer would pay a net amount (the net being calculated in accordance with the Federal Child Support Guidelines) to his former spouse for child support. He claimed a deduction for child support in 2014 pursuant to subsection 118(5.1) of the Income Tax Act (the Act) on the basis that he alleged that the effect of the netting out was that both he and his former spouse paid child support. The consent order was varied in both 2016 and 2017 in an attempt to comply with the provisions of subsection 118(5.1). The Tax Court rejected the claim for a deduction in 2014 on the authority of the decision in Verones v. The Queen, 2013 FCA 69, 2013 DTC 5061 which held that such a set-off (netting out) did not meet the requirements of subsection 118(5.1). Thus the appeal was dismissed, but without costs since this was an informal procedure appeal.
Decision: Unfortunately for Mr. Bayrack the caselaw on set-off is quite clear. While the variation in 2017 was accepted by CRA for 2017 neither it nor the 2016 variation had effect back to 2014 under the terms of the Act:
[19] At paragraph 8 of Verones, the Court stated that:
[8] Once each parent’s obligation vis-à-vis the children is determined, the higher income parent may be obligated to make child support payments to the lower income parent as part of his or her performance of said obligation. However, in the end, the set-off concept does not translate the parents’ respective obligation to child rearing into a “support payment” as defined in the Act.
[20] In the present appeal, both the Appellant and his former spouse were obliged to maintain the children of the marriage according to their relative financial means. The support payments made by the Appellant represented a set-off of their respective financial abilities rather than a set-off of respective child support payments.
[21] With respect to the effect of the November 2017 order, counsel for the Respondent correctly stated that subsections 56.1(3) and 60.1(3) operate to limit any retroactive effect to one year. There are other statutory criteria which must be met before a payment can be treated retroactively. However, I do not propose to discuss them because the fact that 2014 is the year under appeal means that these provisions do not prima facie apply.
[22] The Appellant cited Lawson v. Her Majesty the Queen, 2017 TCC 131, 2017 DTC 1079, in support of his position. However, the facts in Lawsondiffer from the present situation in that the amount paid by Mr. Lawson was not based solely on the Guidelines.
[23] I appreciate the Appellant’s argument and the circumstances which led to this appeal. However, the applicable statutory provisions and the September 2014 order are clearly worded and I must find accordingly.
Accordingly the taxpayer’s appeal was dismissed, but without costs since this was an informal procedure appeal.