Chappell v. The Queen, 2004 TCC 39 (Informal Procedure)

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For the Appellant: The Appellant himself

Counsel for the Respondent: Eric Sherbert

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REASONS FOR JUDGMENT

(Delivered orally from the Bench at

Toronto, Ontario, on November 24, 2003)

Miller J.

[1]      The Appellant, Ian Chappell, brings this appeal under the Court's informal procedure. He appeals the Minister of National Revenue's denial of support payments in 1999 of $20,000 paid to Elizabeth Chappell. He also appeals the late filing penalty and arrears of interest.

[2]      The facts are straightforward. Mr. Chappell and his wife separated in January 1997 due to a marriage breakdown. Mr. Chappell voluntarily made support payments to his wife throughout 1997, 1998 and 1999. In 2000 he realized he required a written agreement to ensure the deductibility of his payments. An agreement was drafted in December 2000 which Mrs. Chappell did not sign until May 23, 2001 and Mr. Chappell signed on May 31, 2001. There is correspondence between Mr. and Mrs. Chappell's lawyers in late 2000 in which Mr. Chappell's lawyer, Mr. Allen, sought execution of this agreement from Mrs. Chappell.

[3]      Mrs. Chappell's lawyer, Ms. Herman, indicated on December 13 that Mrs. Chappell was not prepared to sign. I will just read a couple of sentences from a letter from Ms. Herman of December 13:

... My client is not prepared to sign any documentation at this time as she wishes to settle all matters on a global basis. If we are able to resolve the many outstanding issues by way of a Separation Agreement, that Agreement can reflect any support payments made by your client for 1999 and thus, there is no need for anything further.

Mr. Chappell indicated that his wife suffers mental and emotional problems for which she seeks medical care and in fact was hospitalized during part of 2000. She finds it difficult to make decisions. Mr. Chappell did not want to force the issue by going to court in late 2000 for fear of the effect it may have had on Mrs. Chappell.

[4]      For Mr. Chappell to qualify for the deduction of a support amount pursuant to paragraph 60(b) payments must fall within the definition of subsection 56.1(4) as support amounts. Just very briefly, a support amount means an amount payable or receivable as an allowance on a periodic basis for the maintenance of the recipient, children, or both, if the recipient has discretion as to the use of the amount and the recipient is the spouse or former spouse, the recipient and payor are living separate and apart because of the breakdown of their marriage, and the amount is receivable under an order of a competent tribunal or under a written agreement.

[5]      To be deductible in 1999 there must have been a written agreement made no later than by the end of 2000. This is required because of the wording of subsection 60.1(3) which indicates:

60.1(3) For the purposes of this section and section 60, where 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 preceding taxation year is to be considered to have been paid and received thereunder,

            (a)         the amount is deemed to have been paid thereunder; ...

[6]      So the question simply is, was a written agreement made between Mr. and Mrs. Chappell in 2000? The written agreement signed in May of 2001, though drafted in December 2000, cannot be said to have been made in 2000. The written agreement was made when the parties signed the document which was in 2001.

[7]      Were then the lawyers' letters sufficient to constitute a written agreement between Mr. and Mrs. Chappell? While I concur with reasons set out in cases cited by Mr. Sherbert such as Pienaar v. R.,[1] Grant v. R.,[2] and Foley v. R.,[3] that correspondence between lawyers can serve as a written agreement, I am not satisfied that in this case the letters are sufficiently clear as an agreement to constitute a written agreement. Indeed, the letter from Mrs. Chappell's lawyer of December 13 is quite clearly to the opposite effect. She is saying that if other matters are not agreed to Mr. Chappell is unlikely to get any written agreement on the support amounts. I find it would stretch the import of those specific words and the tone of Ms. Herman's letters generally way beyond their plain meaning to find that they represent a written agreement; they simply do not.

[8]      This is again one of those regrettable situations where a taxpayer makes the right and decent decision in not pursuing an ex-spouse to court for very human and compassionate reasons and in so doing is hit in the back of the head by the tax laws. But I cannot ignore the tax laws or we would have chaos.

[9]      There was no written agreement made in 2000 that would allow the 1999 deductibility. I cannot pretend there was. Without one, the payments are not deductible and the case must be dismissed.

[10]     Under the circumstances this may be an appropriate situation to seek ministerial discretion to waive interest. That is not my call. That has to go to the Minister. That is between Mr. Chappell and the Minister.

Signed at Ottawa, Canada, this 12th day of January, 2004.

Miller J.