Lump-Sum Child Support – Retroactive Increase in Monthly Obligation: Are They Deductible to the Payor?
James v The Queen, 2013 TCC 164
Mr James agreed to a consent order to pay spousal support on a monthly basis in 2004, but in 2009 the BCCA ordered an increase of the payment retroactive to January 1 2005. Mr James paid Ms James the retroactive amounts as a lump sum. The Issue before the TCC was whether this lump sum payment was deductible as a “support amount” under paragraph 60(b) of the ITA.
The Crown argued on the basis of Peterson v. The Queen,(sub nom Tossell v The Queen) 2005 FCA 223, that the amounts were not paid on a periodic basis (and thus not deductible). The Taxpayer argued on the basis of Dale v R, 1997 CarswellNat 391, and Sills v The Queen, [1985] 2 FC 200 (CA), that the BCCA judgment created a liability retroactive to January 1, 2005, of monthly (periodic) payments, which were paid in a lump sum, thus meeting the required definition.
ANALYSIS
Justice Campbell J Miller, in another clear judgment, started by referring to the FCA decision in Sills, where it was stated that so long as the agreement stated that payments were to be made on a periodic basis, a lump sum payment to make up for late payments would not change the character of the periodic payments. Miller J stated that it was obvious that retroactive increase in periodic payments cannot be made on a periodic basis as time travel is not possible, and a limp sum payment was necessary. There was nothing that changed the character of the periodic payments. At paragraph 18, Mille J stated:
The fact that the concept of time has not been lassoed by science so that one
can travel back in time, making it impossible to physically make 54 – $3,250
payments from 2005 to 2009, does not strip the support from maintaining its
periodic nature. This is not a situation where the purpose of the one‑time lump
sum payment is to settle all future support entitlements once and for all. As
Justice Mogan at the trial in Peterson was clear, such lump sums are not
deductible. Here, however, we have an arrangement of ordered periodic payments,
some of which were, by necessity, paid in one lump sum.[Emphasis Added]
The Taxpayer relied on Dale to argue that a retroactive order changes history and must be taken to have been true in the past: Bayliss v. Her Majesty the Queen, 2007 TCC 387.
The TCC held that the BCCA Judgment had the effect of increasing he previous monthly amounts, and therefore the periodic basis requirement was met, and stated: “The legal obligation, even if considered to be created currently, is an obligation to make good the periodic payments”. (para 17). Miller J reviewed the decision of the FCA in Peterson, and stated that Peterson stood for the proposition that new legal obligations created that lack the nature of periodic payments paid in a lump sum do not meet the definition of ‘support payments’ – there must be sufficient proof that the lump sum was payment of periodic amounts. On that basis, Peterson was distinguished.