ALIMONY, MAINTENANCE, CHILD SUPPORT

LINES 128 (INCOME) AND 220 (DEDUCTION)

There were three cases of note in 1990 and, there were only three cases of note in 1989. In the first case,

In 1989, Kenneth Lepeck lost his claim for maintenance. They had signed a written separation agreement and Mr. Lepeck had paid maintenance to his wife for 10 years but the agreement did not specify an amount of maintenance. Judge Luczak of the Tax Court of Canada turned down his deduction for the 1985 and 1986 tax years.

A more significant case took place in the fall of 1989. In this case the claimant, Patrick Anderson had a written agreement that stated that there would be a payment of $2070 a month for 77 months for LUMP SUM MAINTENANCE. In fact, the agreement stated in five places that it was to be non-deductible to the husband and non-taxable to the wife. However, when it was first shown to me and I found out that it was an amount determined to support a wife through several years of university and was determined by actual costs, I determined that it was a regular and periodical payment for maintenance and should be deductible. My statement was, "You can call a toad a frog, but it does not make it a frog." When we got to court, The Tax Court of Canada agreed with me and gave Mr. Anderson the deduction. In fact, the judge used the same toad/frog argument. It was easy to determine that it was deductible; it would have been impossible to defend the wife if DNR had tried to tax her on the amount.

But the laws of a province can change a meaning.

Also, in 1989, Colette Savard had $5,600 removed from her 1985 and 1986 tax returns. Even though, the original agreement had spelled out the word alimony for the amounts which were to pay household expenses for the home where Mrs. Savard lived with her children, The Quebec Superior Court judgment clearly stated that the $5,635 / year was a "compensatory allowance" and not alimony. Judge Proulx of the Tax Court of Canada agreed and did not tax Mrs. Savard on the amounts.

That was Quebec, and we are all used to different rules in Quebec, but ALBERTA!

In 1990, Douglas M Caston found out that being a nice guy and making all your payments on time does NOT get you a deduction. He had made payments of $500 a month on a regular basis while his wife had tried to get the amount increased under the Domestic Relationship Act. Because no court order was ever issued and because there could not be a court order "unless" he was behind in his payments, there was no deduction for the $6,000 paid in 1982.

If you want a deduction, get an agreement, OR pay a smaller amount with no tax consequences. Believe me, this is easier on everyone involved. It means that the payer knows how much they have left and the payee does not need to worry about what the end of the year will bring in the form of a tax bill.

And in 1990, Sharon Stewart succeeded in having some $4,500 removed from her income. The amounts were acknowledged in a changed version of a separation agreement which she had signed without reading, even though she had read the originals carefully and initialed all the paragraphs but the contentious one. Judge Proulx ruled that the payments had been made but "not" pursuant to a written agreement as required by section 56(1)(b). Indeed, the clause was badly worded and did not stipulate that the payments had been made pursuant to the agreement itself.

These "prior" payments are always a problem but if the paperwork is correct, they do not need to be as the following taxpayer found:

Also, in 1990, William Cottrell won his claim for some $1,800 of payments referred to in a "minutes of Settlement" agreement. Judge Taylor of the Tax Court of Canada agreed that the amounts were properly deducted according to the agreement which merely restated what had happened and did not try and reclassify the payments.

WHO GETS THE DEDUCTION? WHO PAYS THE TAX? AND WHEN?!

This section is bound to be a little sexist since 99% of the time, the ex-husband pays the ex-wife the alimony, child support, or maintenance. There are, however, new horizons developing, and we now have several reverse situations; the courts in Vancouver at the time of this writing (Feb 5, 1986) are watching a lesbian couple fight over child support, maintenance, and property splits. In this case one woman assumed the role of breadwinner, while the other woman played the role of traditional wife and mother, even bearing two children by artificial insemination. (Mar 1, 1986, the Judge ruled that the mother had a right to a share of the property, but no rights to child support or support for herself).

Those who have followed the Lee Marvin/Michelle Triola Marvin case in the U.S., and other palimony trials, will recognize that this section is filled with changing community mores and society's conventions.

The rules for claiming alimony, child support, or maintenance have been established for many years and are covered by sections 60(b), 60(c), 60(c.1), 60.1(1), 60.1(2), and 60.1(3) of the Income Tax Act. Essentially these sections say that to be deductible, the payments must be made periodically (i.e. monthly, weekly, bimonthly, quarterly), and must be made pursuant to a "written" agreement presided over by a competent tribunal (i.e. lawyer, judge, family court, etc.). In addition, payments pursuant to a unilateral court order may also be deducted, providing they are also regular and periodical. On May 6, 1974, Section 60.1 (now 60.1(1) was enacted which made payments to third parties deductible when they were for the maintenance of the wife and children. Later on sections 60(c.1), 60.1(2) and (3) were added.

Section 60(c.1) allows a taxpayer to deduct maintenance for a child born `out of wedlock' if the province recognizes the father. So far, only the province of Ontario recognizes this fact (and only after three years cohabitation) and therefore only Ontario residents supporting children born out of wedlock are legally able to deduct maintenance payments made to the mother. This section does not apply to cases where a paternity suit has resulted in maintenance payments unless the three year provision has been met. (the above applies for 84, 85, 86 and 87 - The rules have relaxed since February 11, 1988.)

NEW IN 1988, 1989 & 1990

Payments are only taxable to the recipient and deductible by the payer if they were paid in accordance with a court order made after December 11, 1979 (or earlier if you amend the agreement to include for the payment and deduction) according to the laws of Ontario.

OR

The order or agreement was made after February 10, 1988 under the laws of any other province or before February 11, 1988 if you and your common law spouse agree to include and deduct the payments. (the payments are only deductible from 1988 on - i.e. you cannot amend your 1987 return in this case.)

NOTE

The payer must be of the opposite sex and the natural parent of the child or have lived in a married (conjugal) relationship before the separation. i.e., most provinces provide that after two years of a common law relationship, the common law spouse (usually the man may be required to pay support for children which are not the natural children of the common law spouse).

Section 60.1(1) replaces 60.1.

Section 60.1(2) must be read to be believed. Essentially it seems to say that where a taxpayer has made mortgage payments, etc. for his or her ex-spouse, they will be deductible to the person (and taxable to the spouse under 56.1(2)) provided they do not exceed 20% of the original amount of the loan. (While writing this paragraph, I called on three experts to `interpret' what 60.1(2) said. We could not agree.) If you are on either side of "mortgage payments on the house", be careful. Do not believe just anyone... get a second and third opinion.

Section 60.1(3) was badly needed and applies to the years '84 and later. This section allows a husband (usually) to make support payments while an agreement is being worked out. When the agreement is finally worked out, the payments made during negotiation are deductible to the payer and taxable to the payee PROVIDED that the terms are agreed to in the ultimate separation agreement and are agreed upon in writing by both parties. The amounts must have been specific and regular. This provision applies to the year of the agreement and the preceding `calendar year'. If you separated in September '85 and finally signed an agreement in March '87, only the '86 and '87 payments would be deductible for the payer and taxable to the recipient. Any payments made in '85 would not form part of any tax return.

This will of course cause real problems. If an agreement was signed in October '86 and included payments made in '85, both the husband's and the wife's '85 returns must now be amended to include the respective deductions and income. This means that (to avoid penalties) a wife receiving the payments should file a return on time, even if she does not report the payments. Otherwise, she can end up with a 17% penalty for late filing for an amount that might not have been taxable. Obviously, it is to the husband's benefit (as all the cases included herein show) to speed up the process, and to the wife's benefit to delay the signing of the agreement to January of the next year (obviously insensitive legislation).

Logically then, where hubby was ordered to make mortgage payments, etc., directly to third parties by the Supreme Court of British Columbia, it would seem that those payments would be deductible to the husband, (under section 60.1) and taxable to the wife, and that was the way Gordon A. Bryce prepared his 1975 Tax Return. DNR rejected the claim, however, and it was necessary for our office to appeal to the Tax Review Board. In 1978, Judge Dubrule, Q.C., of the Tax Review Board ruled that Mr. Bryce was correct and that the requirements of section 60.1 had been met. He said, "As I view it, no one can suggest that it (the payment) was not for the benefit of the former spouse as the substantial effect was that she had free rent, and in addition, the greater the sum paid on the mortgage - the greater the sum she would receive on sale of the property." Of course, that settled the matter, right?

Well, no, because the DNR immediately appealed the case to the Federal Court - Trial Division and in 1980, Mr. Bryce won again. Judge J. Collier even said, "I am unable to conceive the legislators intended to make amounts paid to third parties, for the benefit of spouse, former spouse, or children of the marriage, deemed payable to those persons themselves, only if, at the same time, the document specified that the spouse, former spouse or children of the marriage could, at any time, direct the payments be made to different persons, or to themselves, or for other purposes than those stipulated in the document." It is much longer but you do get the idea. Another judge had agreed with our office and the taxpayer. It still wasn't finished. The Tax Office appealed again... and won.

In 1982, the Federal Court of Appeal found in favor of DNR. Five years after the first case, (seven years after the fact), Mr. Bryce lost. In the meantime, thousands of divorce decrees were drawn up following the law as most intelligent people read it, and as the first two judges read it. Literally thousands of men are being penalized by divorce agreements drawn up by competent lawyers, who now have to explain to their clients how the Tax Department moved the goal posts after the kick. With fifty or more percent of marriages ending in divorce, you might want to photocopy this page and send it to your MP along with your opinion.

In March, 1986, 2 weeks after I wrote the above paragraphs about the Bryce case, Jean-Paul Gagnon won a similar case before the Supreme Court of Canada. In this case, Judges Dickson, Beetz, Estey, McIntyre, Chouinard, Lamer and Wilson in a unanimous decision ruled that even if the wife had a duty to make the payments to the mortgage company, she could still dispose of them completely and receive an economic benefit from them.

And at the time of this writing, a fellow is picketing an H & R Block office in New Westminster, B.C. He is claiming that he received bad advice about his payments to his ex-wife. I have to admit that I am likely on H & R Block's side in this case. It has been impossible for the last ten years to `know' the absolute answer in maintenance or alimony cases. The subtle differences between Bryce and Gagnon above might mean that the Supreme Court would have turned down Bryce, i.e. Bryce paid money directly to the mortgage company (by court order); Gagnon paid money to wife... she made the payments to the mortgage company (also by court order). As I say at the end of this section, if you are paying, make sure that you make the payments to your ex-spouse; do not make them to third parties, no matter what you are told.

The Government is now clearly recognizing the deduction for 1988 and 1989 and even allowing people to deduct the payments made for agreements made before March 27th, 1986 (the date of the Gagnon case) and at the same time, the recipient does not have to report the income until Jan 1, 1988. You may amend returns retroactively if this applies to you. As an aside though, there was virtually no publicity on the Gagnon case and no official notification to professionals about the case, and to my knowledge, this book was the only source of this information to the general public until the 1988 government guide was chosen to recognize the situation officially. I think it is ridiculous to put the March 27th date in as a cut-off.

The types of payments that this applies to are:

1.    mortgage payments

1.    property taxes, utilities, condominium fees, house insurance

1.    medical and dental insurance premiums

1.    rental payments.

If the agreement was made prior to March 28, 1986, the payments must only be included in income by the recipient if the agreement provides that the payments will be included in income for tax purposes and are deductible by the payer.

If the agreement or order was made between March 28, 1986 and January 1, 1988, the payments are taxable to the recipient and deductible by the payer even if those provisions are not provided for in the agreement.

These payments must be included in the income of the recipient BUT are deductible by the payer ONLY if the deductibility and taxability of the payments are included in the agreement.

Remember, if you discover from reading this that you reported income you did not have to, or missed a deduction for 1985, 86, 87 or even 88 because you are reading this after filing your return, you may amend backwards for up to three years from the date of the last assessment.

In 1986, Michael Lariviere found out that the fact that the agreement says an amount is support, does not mean that DNR or the Tax Court Judges will agree with you. He had been ordered to pay maintenance of $10,000 in April 1979, $5,000 on April 1, 1980 and $5,000 on April 1, 1981. He tried to write off the $10,000. DNR and Judge Pinard of the Federal Court Trial Division said no.

Also in 1986, Stanley McKimmon found out that two different judges can interpret the same word two different ways. One judge ordered him to pay periodic maintenance of $115,000 ($25,000 a year for four years and a final payment of $15,000 - interest was to be included). He tried to deduct this periodic maintenance ordered by one court. Judge Sarchuk of the Tax Court of Canada thought otherwise. He agreed with DNR and ruled that the `periodic maintenance' was a settlement in full of any property rights of the wife and was not deductible.

But in 1988, Stanley McKimmon WON his case before Judge Collier of the Federal court. Judge Collier agreed that the $115,000 was a deduction. He said, "Any amount awarded as alimony or maintenance may be subject to variation, as the needs of the recipient spouse or the ability of the donor spouse to pay, changes with time. The payments can then be changed by order of the court. However, this does not prevent the maintenance payments from being considered periodic in nature.

In another case of rubbing salt into old wounds, Irving A. Taylor was challenged on his alimony payments by DNR. He had married a lady in Louisiana in 1969 and moved to Canada in 1974. On June 2, 1977 he discovered that his wife's prior marriage had not been properly dissolved, and started an action to annul their present marriage. His wife, Janet Anderson, started a divorce action against Taylor on August 4, 1977 and was awarded interim alimony of $950 per month starting September 1, 1977. Taylor paid Anderson $16,075 in 1978 and $8,550 in 1979 in accordance with that award. The annulment trial took place in June and July of 1979 and on December 27th, the Supreme Court of the Province of Ontario annulled their marriage because of the prior existing marriage.

The Hon. L. J. Cardin, P.C., Q.C., Chairman of the Tax Review Board ruled in 1982 that the payments had been made to a former spouse. Now you are getting the idea. Of course, the Tax Department appealed because the opinion of the chairman of the Tax Review Board was not good enough.

Mr. Taylor died, and in 1984, Judge J. Cattanach of the Federal Court - Trial Division ruled that Mr. Taylor was never married to Janet Anderson (that WAS what Taylor had said when he sued for an annulment and won), and that made the Supreme Court of Ontario's alimony order not deductible.

Now, I agree that Mr. Taylor was not married, I think, well I don't know, well maybe we should ask Janet Anderson. Somehow, the whole thing seems unfair.

The amount paid must be paid pursuant to a written agreement. In 1984 Zenon Diagacz had his $2,288 claim reduced to $1,200, the amount stipulated in his divorce decree. He contended that the amount had been increased to $190 per month on January 5, 1979. Although an agreement in writing was produced, the evidence seemed to indicate that it had been back dated. Judge T.C.J. Cardin of the Tax Court of Canada dismissed the appeal on the grounds that although a verbal agreement might well have existed, there was no evidence that a written agreement had existed as required by section 60(b).

In 1982, John David Philp (similar to Bryce above) lost his claim for mortgage and taxes paid for the residence occupied by his wife. He appealed this Tax Review Board decision to the Federal Court - Trial Division. In 1983 Judge A.C.J. Jerome agreed with the Tax Review Board, but for different reasons than the Bryce case. He felt that Philp would have succeeded in his claim if his agreement had been dated after May 6, 1974. He said, "Unfortunately for the Appellant, his payments were paid pursuant to an agreement dated April 10, 1973; therefore, he cannot take the deduction." In 1983, John Philp appealed his case to the Federal Court. Judge Jerome disallowed any deduction except the payments directly to the wife. He also turned down a claim for legal expenses which were incurred to reduce the alimony and maintenance paid out.

In 1982, Robert C. Ivey had also lost his deduction for legal fees spent defending his wife's application for increased maintenance payments. He won his case with his ex-wife, but Member Bonner of the Tax Review Board ruled that the expenses were not incurred for the purposes of gaining or producing income, and disallowed Mr. Ivey's appeal.

In 1985, John McCombe lost a legal expense claim before Judge Cardin of the Tax Court of Canada. The Judge ruled that legal expenses were incurred to bring a future right into being, and were therefore not deductible (i.e. legal expenses to reduce future alimony payments do not produce future income).

Again, I consider this unfair. You may want to send this to your M.P. as well.

In 1986, David Sadavoy won his case for legal fees. When his marriage broke down, he kept the children, but his ex-wife continued to collect the Family Allowance. He went to the Supreme Court of Canada to obtain a custody order solely to gain his right to the family allowance payments. DNR argued that the Burgess case above precluded his deduction for legal fees as he was going to court to establish a new right. He argued that the right (and the amount) already existed, and that he was going to court to get the legal right to collect it. Judge Brule of the Tax Court of Canada bought the argument. He also awarded costs to Mr. Sadavoy. -WOW-

In 1987, Hope Armstrong had to pay tax when she failed to pay her ex-husband $5,700 on the sale of the matrimonial home. She had to pay her ex-husband 25% or $7,000 (whatever was less) if she sold the family house unless she bought another house and remained unmarried at the time (she could not live common-law either). She sold the house and bought another house. However, she was living in a common-law situation. When she did not pay the 25% ($5,700) to her ex-husband, he stopped making his $400 per month maintenance payments. She refused to pay tax on the amount of alimony which he had offset, but Judge Bonner ruled that she had received the money and was taxable on it.

Margaret Anderson fared better later on in February, 1988 when she did not have to pay tax on $1,150 paid to the Alberta Government by her ex-husband and passed on to her by the Alberta Government. Judge Tremblay of the Tax Court found that although Section 56.1(1) was a taxing statute, it was unclear.

In 1961, Jean Boos established the principal that a wife could deduct the legal expenses that she spent to collect alimony. She was living in the same house as her husband in Kitchener but they were ''rooms, if not worlds, apart''. She sued her husband for desertion (in the same house) and won $150 a month maintenance payments. Then, for her tax return, she said the maintenance was not taxable as she was not living apart (having your cake and eating it too). The tax office added the income to her return for 1968. She appealed and the chairman of the Tax Appeal Board, Cecil Snyder, ruled that she was living apart and taxable on her maintenance, but that her legal fees were deductible as expenses necessary to produce income. This premise no longer seems to be in effect as evidenced by the cases before and after this note. It would seem now that only legal expenses to collect the alimony or maintenance are deductible. This means that `usually' hubby must be in arrears in the payments, and only collection expenses are allowed.

In 1986, Claire and Fernand Longchamps received a similar ruling. A divorce was started in March of 1980 and Fernand was ordered to pay $1200 per month to Claire. However, he did not move out of the house until May, 1981. Judge Couture ruled that the marriage had broken down sufficiently that it was of no consequence whether the couple were `miles' apart or under the same roof.

If you are involved in negotiating the `amount' of alimony or maintenance, do not get caught up in the idea that the lawyer's bill for negotiating the alimony will be deductible. Nothing up to the day of divorce is deductible, unless it is to collect.

In my opinion, the only legal fees deductible in alimony or maintenance cases are legal fees to collect PAST DUE payments. Any payment to a lawyer for `negotiating the amount' or arranging for the divorce is not deductible, no matter what your lawyer or accountant says. (See the B.A. Burgess and the Dianne Wilson cases below.)

Be careful; if the bill is challenged, you could end up in an embarrassing tax case and pay all over again. Make sure of the costs and what they are for. Establish the rules before you move. Get a written quote.

I have good reason for saying that collecting the alimony or maintenance does not mean an automatic tax deduction for legal fees. In the first week of March 1986, a lady client told me her `very prominent' lawyer was going to give her a $3000 bill for negotiating the alimony she was receiving. He had told her absolutely that the amount was deductible, but there was no court appearance or collection procedures involved. The fee was just for negotiating the amount, the `right to which' likely existed by provincial law.

The following cases would indicate that NO PART of a legal fee is deductible in negotiating a divorce.

In 1981, Dr. Beverley A. Burgess lost her claim for $4,400 of legal fees for negotiating maintenance for herself and her children in a divorce case. Judge Cattanach of the Federal Court - Trial Division ruled that the right to maintenance which existed upon marriage had dissolved upon the dissolution of the marriage. Therefore, the legal fees were incurred to establish a new right and were of a capital nature. Dr. Burgess had won her claim before the Tax Review Board in 1979.

But the Tax Review Board was not consistent either.

In February, 1981, Dianne Wilson had also lost her claim for legal expenses incurred to negotiate alimony and maintenance in a divorce action. Member D. E. Taylor of the Tax Review Board ruled that Mrs. Wilson had expended the fees to establish a `new' right, rather than to enforce an existing right.

LUMP SUM PAYMENTS

If you want a deduction, do not make lump sum payments in any manner. Not as payments for the future, or to catch up on past payments.

In 1983 Marvin Tanner lost his more than $65,000 deduction in the Tax Court of Canada. Mr. Tanner had agreed to pay his wife maintenance, provide her with a leased automobile, and pay a lump sum maintenance payment of $65,000. The lump sum part was changed (in writing) to monthly payments until the total reached $65,000, and these payments were to be made by the taxpayer's estate in the event of his death. Judge T.C.J. Tremblay of the Tax Court of Canada ruled that the lease payments were not deductible (in spite of section 60.1) and that the $541.66 payments per month (towards the $65,000) were not alimony and therefore not deductible. He said, "How can the entire sum of $65,000 be regarded as alimony when it is the intention of the parties that the payments are to continue to be made after either one of them dies?"

And now, after telling you not to make lump sum payments in any manner, I refer you to:

1985, when William Keith Hanlin won his claim for large payments in the Federal Court - Trial Division. He had a written separation agreement stipulating that he pay his wife $1,000 a month, together with $18,000 on April 24, 1979, $19,000 on January 1, 1980, and $17,000 on January 1, 1981. The reason given for the large sums was that Mr. Hanlin's law firm made periodic payments to him in January or February, and the money was available at those times. Please note... these payments were periodic, were pursuant to the agreement, and had a rationale behind them. Other lump sum payments had been made from sale of assets, etc., and these were not a subject of the case. So treat these larger payments as the exception, rather than the rule.

As mentioned in the Bryce case, mortgage payments made directly to the mortgage company may not be deductible anymore. However,

In 1985, Robert J. Byers was allowed the deduction for the amount of mortgage payments which were made by his ex-wife out of the $700 per month he paid to her as alimony. The written agreement provided for the wife to make the payments. The Tax Department tried to reduce the $8400 deduction by the amount of the mortgage payment, but Judge Bonner of the Tax Court of Canada disagreed and allowed the total deduction. This is the same situation which Gagnon has now won before the Supreme Court.

Also in 1985, Harry T. Snowden lost out to Judge Bonner. His agreement gave his wife a share of increased billings in the consulting businesses he owned, as well as a regular monthly maintenance. In an unusual situation, Judge Bonner turned down the regular payments but allowed the share of the consulting fees as a deduction. The year in question was 1976; it only took 9 years for an answer.

Carmen E. Knapp also lost his claim in 1985. He tried to deduct $8200 support paid while he and his wife were negotiating a contract. Judge Christie ruled "no claim" as there was no written agreement or court order.

Bernard A. Hodson's claim was turned down for the same reason in 1985. His wife refused to sign a written agreement for religious reasons. His argument that the payment and acceptance of the payments were an agreement was not accepted by Judge Couture of the Tax Court of Canada. He had been advised by his lawyer to cease making the payments until his wife had signed an agreement, but stated that as a person of integrity and principal, he did not believe in forcing something on a person against their will. Neither did he believe in leaving his wife destitute. (Remember, if he had stopped paying, and she had sued in family court and a judgment was issued, the payments would have been deductible.)

Similarly in 1986, James Andrychuk lost a similar argument. He was paying $300 a month for the entire year but the court only ordered it to start on March 1. Million Dollar Buildings had transferred over a letter but Judge Couture ruled that a letter from the wife requesting the payments in January and February were not written agreements. Furthermore, even though the agreement stressed that it was subject to annual review, increased payments made at the end of the year were not deductible because a court or competent tribunal had not ruled on them.

Paying back money owing to a wife, and calling it alimony, does not work either. Gilbert Brodeur lost his claim in 1985. The claim was for $300 a month, but it represented a repayment of $20,000 owed to his ex-wife. Judge Tremblay of the Tax Court of Canada turned it down.

Remember, if the payer does not get to deduct the payment the recipient does not have to pay tax on the amount.

In 1986, Doreen del Valle elected to take $500 per month and occupy a residential property rather than her option, which was to take $925 per month (both choices were part of a court order). DNR tried to tax her on the $925 per month. Judge Sarchuk of the Tax Court of Canada ruled that DNR had failed to prove its point.

And I reiterate my warning on the first page. New law for 1984 and later would seem to indicate that mortgage payments for the benefit of the spouse and children would be deductible if they do not exceed 20% of the original principal for the year. Four of us with four explanations written by four "competent" tribunals could not agree on what this really meant. Since Mr. Bryce spent years in court over similar rules, my advice is that no one should count on this "new law". If alimony or maintenance is to be paid, follow the rulings above. Make sure that the money is paid to the recipient and that THEY have the ultimate control if you wish them to pay the tax and not you.

PRIOR PAYMENTS

Section 60.1(3) which was added retroactively to apply to periods from January 1, 1984 has made it possible for separating couples to obtain a little more equity. I reproduce it in its entirety:

For the purposes of this section and Section 60, where a decree, order or judgment of a competent tribunal or a written agreement made at any time in a taxation year provides that an amount paid before that time and in the year or the immediately preceding taxation year is to be considered as having been paid and received pursuant thereto, the following rules apply:

(a) the amount shall be deemed to have been paid pursuant thereto; and

(b) the person who made the payment shall be deemed to have been separated pursuant to a divorce, judicial separation or written separation agreement from his spouse or former spouse at the time the payment was made and throughout the remainder of the year.

Another problem we are wrestling with involves the payments of back alimony. A common occurrence is for there to be a shortfall of alimony and a house involved. Hubby turns the house over to his ex-wife as full payment of the arrears, etc. It would seem that any amount which was already in arrears would be deductible as a catchup of a regular and periodic payment (see Helmar vs DNR in 1963). If there was a payment which was for the future, it would not be deductible. Example: Husband owes $2,000 a month and is $20,000 behind. He turns over $50,000 equity in the house to get out. He should get the $20,000 catch-up but the $30,000 is not deductible.

Further details can be obtained by getting Interpretation Bulletin IT-118R3, Alimony and Maintenance from The Department of National Revenue.

And remember, the government guide is NOT law. Most of the court cases I have mentioned here thought they were correct according to the guides available at the time. Do not go along with any `gray' areas, they come back to haunt you. And last but not least, the document will usually speak for itself. But as the judge said in the Patrick Anderson case at the start of this section "You can call a toad a frog, but it doesn't make it a frog."