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Emond v The Queen, 2012 TCC 304

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Assignment of Pension Benefits vs Division of Matrimonial Property (ie pension amounts)

Emond v The Queen, 2012 TCC 304

At issue here was whether the payment from the ex-husband to the ex-wife (Taxpayer) as part of a separation agreement and division of matrimonial property, calculated as 1/2 of his net annuity payments, ought to be included in income for the ex-wife under subparagraph 56(1)(a)(i) of the ITA and on the definition of “superannuation or pension benefit” in subsection 248(1)?

The Court held that the payments here were agreed to be net amounts, and were the division of the husband’s income, and that these amounts received in accordance to the separation agreement, being a division of property, are not taxable as pension income pursuant to subparagraph 56(1)(a)(i) of the ITA.  The Court drew a distinction between the assignment of pension benefits to the ex-spouse (which would be taxable to the receiving ex-spouse) and an agreement to split another’s income as part of the division of matrimonial property (not taxable to receiving ex-spouse).


The Taxpayer’s marriage broke down in 2001, and by consent order the spouses agreed that the spouse of the taxpayer was to make payments to the taxpayer for spousal support and as a portion of his retirement annuity.  The taxpayer failed to include the payments received from her spouse that represented a portion of his retirement annuity for the taxpayers under appeal. The consent order stated that the split of the annuity payments, being part of the division of marital property, was “not to be considered spousal support by” either of them, and was to consist of ½ of the net amount of the annuity payment.


The CRA took the position that the consent order was not clear, and did not specify who was responsible for the tax. The CRA relied on subparagraph 56(1)(a)(i) of the ITA and on the definition of “superannuation or pension benefit” in subsection 248(1) to argue that the taxpayer was taxable on the half of the annuity she received from her former spouse.

The CRA argued that it was the intention of the consent order to divide the source of income equally among the spouses, and that each would pay tax on the income from that source. Thus, the pension benefits were received by the taxpayer in lieu of the support amounts initially received. The CRA relied on the FCA decision in Walker v. R., 1999 CarswellNat 2307, and on the TCC decision in Lane v. The Queen, 2007 TCC 674.  The Court noted, however, that in those cases the spouses agreed to assign ½ of the GROSS proceeds and this was to be divided at source.


The Court looked at the decision in Andrews v. The Queen, 2005 TCC 246, where the ex-husband was paid the full amount of the pension, and the husband paid the portion to the ex-wife directly. Bowman CJ felt boubd by the FCA decision in Walker, supra, but said that the payments directly from the ex-husband to the ex-wife were not superannuation or pension benefits in the hands of the ex-wife within the meaning of s 248(1), but was rather a division of matrimonial assets, being neither a support amount nor a pension benefit in the hands of the recipient ex-spouse.  Bowman CJ had difficulty with the decision of the FCA in Walker because “an actuarial calculation of the present value of the husband’s pension and a lump sum paid to her by her husband, the lump sum would clearly not have been taxable, either as a pension benefit or as a support amount”, and asked why amontly payment would then be taxable.  He also

found the reasoning in Walker difficult to reconcile with concepts firmly entrenched in income tax law:

(a)   absent sham, the form of a transaction prevails over notions of “substance” or “economic reality”.

(b)  the tax consequences of a transaction are to be determined on the basis of what was in fact done not what might have been done.

(c)   the parties to a transaction cannot bind either the Court or the Minister by an agreement as to the tax consequences of the transaction.

The Court then referred to the decision in St-Jacques v. Canada, [1999] T.C.J. No. 929 (QL), 1999 CarswellNat 3121, which distinguished Walker and stated that all that was occurring when the husband agreed to share his pension income was that, an agreement to share his income with another person – It did not make the recipient one who was receiving income, and thus 56(1)(a)(i) did not apply.  The TCC there said that ” assigning entitlement to a gross pension income does not have the same effect as sharing net pension income with another person.”




Lucarelli v The Queen, 2012 TCC 301

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Certification Requirement to Deduct Tuition for Schooling as a Medical Expense

Lucarelli v The Queen, 2012 TCC 301

At issue in this appeal was whether the certification requirement in paragraph 118.2(2)(e) was met, thereby entitling the taxpayer to deduct the tuition paid to a specialized private school for a child diagnosed with a learning disability as a medical expense tax credit.

The Court held that the legislative requirement for a certificate are satisfied by a doctor’s report that specifies the nature of the disability and the type or training required, and evidence that establishes that the school enrolled in provides that type of training for children with the disability identified.  There was no need to specify the school in the report, and there was no need for an official certificate.

Comment:  The words of paragraph 118.2(2)(e) make the requirements clear in these circumstances: (1) The patient  needs to be certified to be a person who by reason of (a) mental or physical handicap, (b) requires the equipment, facilities or personnel; (2) that the certification be by an appropriately qualified person; (3) that the requirement for equipment, facilities or personnel be “specially provided by that school […]”; and (4) that the school (etc) specially provide for individual’s suffering from the handicap suffered by the patient.

It appears that the certificate must identify a school that is appropriate, since the ITA refers to “that school”, not “a School”.  Also, the provision seems to contemplate one qualified person providing the certificate and does not seem to accommodate a compilation of documents meeting the certification requirement.  The  circumstances of this case do not appear to strictly fit within the words of the ITA, and the Court may have been moved more by the sympathy.


The Taxpayer claimed the tuition for her child to attend a specialized private school as a medical tax credit relying on her child having a learning disability. The taxpayer’s child was assessed in 2007 by  a psychologist who issued a detailed report making several recommendations, including the need for an individual education plan and individual learning resources.  The Child was later assessed in 2008 by professionals, which was less extensive an assessment than the first.

The taxpayer had to find a new school and began an intensive search for schools, including public schools, finally selecting a school that specialized in educating children with the learning disability that the taxpayer’s child had.  The specialized schooling began in 2009.

The taxpayer obtained a letter from the school’s principal identifying the need for specialized programming and that the schools meet this needs and requested a further letter from the original psychologist that stated that the school the child was registered in follows several of the recommendations made.

The MNR denied the credit for the 2009 tax year on the basis that the certification requirement was not met.  The Crown did not challenge the needs of the child for specialized care and training,  or the school’s ability to provide for this need.


Justice Woods expressly stated that the taxpayer was very sympathetic and began by reviewing the relevant words of the relevant provision.  Paragraph 118.2(2)(e) reads:

118.2(2) Medical expenses – For the purposes of subsection (1), a medical expense of an individual is an amount paid


(e) [school, institution, etc.] – for the care, or the care and training, at a school, institution or other place of the patient, who has been certified by an appropriately qualified person to be a person who, by reason of a physical or mental handicap, requires the equipment, facilities or personnel specially provided by that school, institution or other place for the care, or the care and training, of individuals suffering from the handicap suffered by the patient;

The court noted that schools specialized in assisting with reading and writing issues qualify for the tax credit, referring to Rannelli v The Queen, 91 DTC 816 (TCC).

In dealing with the certification requirement the court was referred to several decisions.  In Title Estate v The Queen, 2001 FCA 106, it was stated that the certificate must ” at least specify the mental or physical handicap from which the patient suffers, and the equipment, facilities or personnel that the patient requires in order to obtain the care or training needed to deal with that handicap”.  Woods J also mentioned that in Lang v The Queen, 2009 TCC 182, it was stated that the certificate ought to also specify the particular schools.

The Crown did not argue Lang, but rather argued that the report relied on was prepared two years before enrolment in the school and that the specialized training was not set out in sufficient detail in the report.

The Court disagreed and stated that the certificate requirement was met by looking at the initial report and the follow-up report, which set out (1) the exact difficulties experienced by the child, and (2) the suggestion for individualized training be provided for the problem areas.  Though neither report specified a school, the letter from the principal indicated that the school’s methodology was exactly that recommended in the psychologist report.

Thus the court stated at paragraph 22:

[22] It seems to me that the legislative requirements are satisfied in circumstances where Dr. Johnston’s report specifies the nature of the disability and the type of training that is required, and the evidence establishes that the TALC Academy specializes in providing this type of training for children with this disability.

The lapse of time between the first report and the enrollment was “filled” by the second report.

Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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