|
Citation: 2004TCC787
|
|
Date: 20041201
|
|
Docket: 2003-2282(IT)I
|
|
BETWEEN:
|
|
ORA P. HARKINS,
|
|
Appellant,
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent.
|
REASONS FOR JUDGMENT
Miller J.
[1] This is an informal procedure
appeal by Mr. Ora Harkins for his 1997, 1998 and 1999 taxation
years. The Minister of National Revenue disallowed the deduction
of support payments in those years on the basis that the payments
were not made pursuant to a written agreement. There is no
dispute Mr. Harkins made the payments. Mr. Harkins maintains that
there was a written separation agreement dated and signed in 1987
by him and his wife. The Respondent's position is that the
document was not signed until 1999 or 2000.
[2] Mr. and Mrs. Harkins were married
in September 1960 and separated in September 1986. Nothing was
put in writing at the time of the separation, though Mrs. Harkins
was anxious about her future security. This concern was captured
in an undated letter, which Mr. Harkins suggested was received in
September 1987, wherein Mrs. Harkins stated:[1]
You promised you'd have something to present to me on Sep.
16 - you've had 2 weeks - now I'm expected to wait until
next week ... I need to have my future assured - I must have
my future secured ...
[3] Mr. Harkins claims he drew up a
Separation Agreement dated December 4, 1987. It is worth
reproducing parts of that document:[2]
2(a) The husband agrees to pay
to the wife $1300 monthly as a maintenance allowance and that
subsections 60.1(2) and 56.1(2) of the Income Tax Act dealing
with alimony and maintenance are to apply to the above
maintenance allowance. This arrangement is implemented due to
stress and health considerations of the wife and she may at any
time change the arrangement and require that the whole of the
$1300 be paid directly to her.
...
Dated at Darmouth, Nova Scotia, this 4th day of December,
A.D., 1987
The rest of the agreement was written in similar legalese-type
language.
[4] Mr. Harkins indicated he had no
legal assistance in drafting this document, but relied on his
years of experience in the financial planning sector. He also
testified that the agreement was solely to assure Mrs. Harkins of
her security, and had nothing to do with taxes. On
cross-examination, Mr. Harkins admitted that he referred to
Interpretation Bulletins prior to drafting the document. His
position is that he and Mrs. Harkins signed the document in Mrs.
Harkins' kitchen on December 4, 1987. There were no
witnesses. Mr. Harkins initially said that he took a copy of the
agreement but quickly changed his testimony to indicate that he
did not need a copy, so he left the only copy with Mrs. Harkins.
He further stated that Mrs. Harkins was satisfied at the time,
that is in December 1987.
[5] In early 1988, Mrs. Harkins sought
legal help from Mr. Douglas Sealey. She was not satisfied with
him so she subsequently retained Ms. Nancy Bateman in June 1988.
In a letter dated June 14, 1988, from Ms. Bateman to Mr. John
Black, Mr. Harkins's lawyer, Ms. Bateman writes:[3]
... I understand matters have, to date, proceeded on an
informal basis, however, Mrs. Harkins is now wanting to move
things along in the context of signing a formal separation
agreement.
[6] On July 18, 1988, Mrs. Harkins
writes directly to Mr. Harkins requesting:[4]
What I would like, and at least to me anyway it would be the
sensabile (sic) route to take, is for the both of us to
sit down together and make up a basic draft of the separation
agreement; at least this would cut out some of the letters, phone
calls or whatever that cost so terribly much money ...
Some months later Mr. John Black, acting on behalf of Mr.
Harkins, writes to Ms. Bateman:[5]
My client has prepared his 1987 tax return for filing. He
wishes to claim maintenance payments of $5,460 for the tax year
1987. His actual payments were far in excess of this amount. He
will need either an agreement or an order to support this
deduction. Would you please discuss this with your client and let
me know your position on this?
[7] In the mid-1990s Canada Customs
and Revenue Agency (CCRA) conducted an audit of Mr. Harkins'
1992 and 1993 taxation years. In correspondence from Mr. Harkins
to CCRA dated September 28, 1995, Mr. Harkins writes:[6]
... Support to an ex-wife to the tune of $15,000 or more
a year without being able to get my hands on a signed separation
agreement (thereby having my support deduction of a significantly
lesser amount disqualified) ...
Ultimately Mr. Harkins does produce a December 4, 1987
separation agreement to CCRA. He testified that Mrs. Harkins had
refused to give it to him for some period of time. On April 20,
2000, the Minister reassessed Mr. Harkins' 1997 tax liability
to allow his claim for support payment deduction. Similar
reassessments for 1998 and 1999 were issued by the Minister on
January 22, 2001. On November 27, 2001, reassessments were issued
disallowing the support payments. CCRA would have received the
December 4, 1987 separation agreement prior to issuing their
first reassessment in April 2000.
[8] Mrs. Harkins' accountant, Mr.
Boulton, testified that he prepared Mrs. Harkins' 1997
to 1999 tax returns. When they were reassessed including the
support amounts in income, Mr. Boulton represented Mrs. Harkins
in appealing that reassessment. Mr. Boulton's evidence was
that he was advised by Mrs. Harkins that the signed agreement of
December 4, 1987 was not signed before the years under appeal,
1997, 1998 and 1999. He was led to believe that it was signed
just before Mr. Harkins had to see CCRA. On behalf of
Mrs. Harkins he successfully appealed the reassessment, as
evidenced by the filing with the Tax Court of Canada a consent to
judgment dated September 24, 2001, confirming the support
payments were improperly included in Mrs. Harkins'
income.
[9] The CCRA appeals officer, on Mr.
Harkins' appeal of his 1997, 1998 and 1999 years, spoke to
Mrs. Harkins during her investigation in 2002 and 2003, and was
led to believe Mrs. Harkins had not signed the separation
agreement until 1999 at the earliest, and only when demanded by
Mr. Harkins on the basis that he would otherwise withdraw his
support.
[10] Clearly, CCRA and Mr. Boulton both
believed Mrs. Harkins that the December 4, 1987 separation
agreement was not signed until shortly before Mr. Harkins
produced it to CCRA in connection with his 1997 tax
assessment.
[11] Mrs. Harkins was subpoenaed by the
Respondent to testify. Her health precluded her from coming to
Court so her evidence was given at home. I surmised that she
suffered both physical and mental ailments though no detailed
medical background was presented to me, other than a reference to
Parkinson's disease. Mrs. Harkins indicated she would not
have testified had she not been subpoenaed.
[12] In her emotional testimony Mrs. Harkins
identified her signature on the December 4, 1987 separation
agreement, but could not recall when or where she signed it;
neither could she remember telling anyone that she signed it in
1999 or 2000.
[13] Mrs. Harkins also acknowledged her
signature on a document dated December 5, 2003 with the following
title:[7]
Re: Ora P. Harkins v. Her
Majesty the Queen
Court Number: 2003-2282(IT)I - Your File: AR -3 - 65867
Respondent represented by Martin Hickey, Legal Counsel, Tax
Law Services
She confirmed she did not prepare this document, but that Mr.
Harkins did, that she reviewed it quickly, that she signed it
because Mr. Harkins asked her to because he needed it for his Tax
Court of Canada case, and that she was scared in not more
thoroughly reviewing it. The document acknowledges that she
signed the separation agreement in December 1987, and only
maintained that she signed it 12 or 13 years later out of a sense
of vindictiveness.
[14] This is a troubling situation, and one
which may well have benefited from a section 174 application when
Mrs. Harkins' appeal first surfaced. Regrettably that did not
occur. This is a case to be decided entirely on the basis of the
determination of the facts. If Mr. and Mrs. Harkins signed the
December 4, 1987 separation agreement in December 1987, then Mr.
Harkins gets a deduction for his support payments in 1997, 1998
and 1999. If however they signed that document just prior to Mr.
Harkins presenting it to CCRA, resulting in their favourable
reassessment of April 2000, then Mr. Harkins does not get the
deduction. On balance I have not been convinced that Mr.
Harkins' story rings true.
[15] I will first identify those elements of
the evidence that suggests a finding that the agreement was
signed in December 1987:
(i) Mr. Harkins testified it was
signed on December 4, 1987 in the kitchen of the family home;
(ii) The physical agreement
itself drawn by Mr. Harkins is "Dated ... this 4th day
of December, A.D., 1987";
(iii) Exhibit A-1, an undated letter,
suggests Mrs. Harkins is looking for a proposal;
(iv) Mrs. Harkins signed the December
5, 2003 document acknowledging the separation agreement was
signed in December 1987.
[16] With respect to the last point, I place
no reliance on this document as any credible admission by Mrs.
Harkins that she actually signed the separation agreement in
December 1987. In December 2003, Mrs. Harkins simply signed what
was put in front of her at the request of Mr. Harkins, because he
needed it for his own tax appeal. She neither prepared this
document nor even read it thoroughly. My impression of Mrs.
Harkins' explanation was that she simply did not want to
upset Mr. Harkins. At trial she was incapable of confirming or
denying the truth of the statements contained in the
document.
[17] The evidence that causes me not to
believe the document was signed in December 1987 is as
follows:
(i) Mr. Harkins relied on his
many years as a financial planner for dealing with the agreement
in such a legalistic manner, yet he saw no need to keep a copy of
this important document. This is not consistent.
(ii) Similarly, given his
financial background, why would Mr. Harkins not have any
witnesses? If the document was not signed until 1999 or 2000,
there would have been very good reason not to have witnesses.
(iii) In his testimony, Mr. Harkins
first stated that he took a copy of the agreement at the time it
was signed, but he then later stated, no, he left the only copy
with Mrs. Harkins. His testimony was confused and
contradictory.
(iv) Mr. Harkins was adamant that the
separation agreement was solely to reassure Mrs. Harkins as to
her financial security and had "nothing to do with
tax". Yet, the operative section of the agreement is
completely tax driven. This is not consistent.
(v) Mr. Harkins' own lawyer's
letter of January 4, 1989 indicates Mr. Harkins will need an
agreement to get the deduction for support payments. This makes
no logical sense if a written agreement already existed.
(vi) There are no independent
third-party documents or evidence that confirms or makes any
mention of the separation agreement.
(vii) Mr. Harkins testified that Mrs.
Harkins was satisfied with the arrangement in December 1987, so
why was she seeking legal advice in early 1988?
(viii) Why would Mrs. Harkins' lawyer, Nancy
Bateman, write to Mr. Harkins' lawyer in June 1988
suggesting Mrs. Harkins was "wanting to move things along in
the context of signing a formal separation agreement" if an
agreement already existed?
(ix) Why, in July 1988, is Mrs.
Harkins suggesting to Mr. Harkins they sit down and make up a
basic draft of the separation agreement if she held a signed
agreement dated December 1987?
(x) Mrs. Harkins told her accountant
and a CCRA officer the same story, a year or more apart from one
another, that the agreement was not signed in December 1987.
(xi) Mr. Harkins testified they
separated in September 1986, though the agreement states
September 1987.
[18] If this were a matter of Mr. Harkins
having to raise a reasonable doubt in my mind, then he might have
succeeded, but this is a civil matter and the onus is on Mr.
Harkins to establish on a balance of probabilities that the
agreement was signed in December 1987. The evidence I have just
reviewed leads me to tip the balance away from a December 1987
signing. I do not accept Mr. Harkins' version of the facts.
The support payments of 1997, 1998 and 1999 were not made
pursuant to a written agreement. The appeals are dismissed.
Signed at Ottawa, Canada, this 1st day of December, 2004.
Miller J.
Email this Content