Citation: 2013 TCC 182
Date: 20130611
Docket: 2010-2074(IT)G
BETWEEN:
DR. BAHAUDDIN HASAN DANIAL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bocock J.
I. Facts
[1]
The Appellant, Dr.
Danial, brings this Appeal under the Court’s General Procedure seeking to
overturn the Minister’s reassessments denying the taxpayer’s deductibility of
payments made to the Appellant’s ex-spouse, in the amount of $53,300.00 in
taxation year 2004 and to the Appellant’s stepdaughter in the amounts of
$18,000.00 in each of taxation years 2004 and 2005 (the “relevant period”).
[2]
The facts are not
materially in dispute. The Appellant admitted under a Request to Admit that he
and his ex-spouse irrevocably separated in April of 2004. It is also admitted
that the Appellant’s stepdaughter was over 18 years of age during the relevant
period. As to the amounts actually paid (as opposed to those amounts claimed),
there is uncontradicted evidence that at a minimum the sum of $37,600.00 was
paid to the Appellant’s ex-spouse in 2003 and 2004 and that the sum of $17,400.00
and $25,200.00 was paid to the Appellant’s stepdaughter in each of 2004 and
2005, respectively.
[3]
Originally in filing his
tax returns, the Appellant had characterized the payments to the recipients as
salary and wages and/or office expenses of his medical practice. In 2007, the Minister
reassessed the taxpayer and disallowed such deductions. In submitting Notices
of Objection to the Minister, Dr. Danial re-characterized the payments as support
payments rather than salary, wages and/or office expenses.
[4]
As to evidence of a
support agreement, Dr. Danial testified that at some point in 2004 he had
prepared and submitted to his spouse a separation agreement written in Urdu
providing for payments of monthly support to both his spouse (as she then was)
and stepdaughter. The Appellant claimed that the Agreement was delivered to his
ex-spouse but never acknowledged, executed or returned by her to the Appellant.
[5]
In addition, Dr. Danial
testified that his spouse (now ex-spouse) suffers from Hepatitis C and is
presently in the end stages of that illness. In fact, the hearing of this
matter was delayed for many months as a result of treatment and physical and/or
mental manifestations of the illness. Moreover, credible testimony was offered
that the illness was likely contributing to some level of psychological
dysfunction. Moreover, the Appellant was reluctant to add to his ex-spouse’s burden
by forcing her to testify at the hearing.
[6]
In 2009, the Appellant’s
spouse brought an application in the Superior Court of Justice for divorce,
support payments and a determination of an equalization of net family property
under applicable legislation.
[7]
An Order of the Court issued
and thereafter monthly, periodic payments on account of support were made to
the spouse and thereafter payments were deductible from income by the Appellant,
all in accordance with the applicable legislation.
II. Submissions
[8]
Appellant’s counsel
submits that, although there is no evidence of a written agreement nor a Court Order
applicable to the 2004 and 2005 taxation years, there is sufficient direct and
indirect evidence of a verbal agreement regarding the requirement of the Appellant
to pay support payments to his ex-spouse and stepdaughter. In short, as a
result of that evidence the Court should recognize that the provisions of the Income
Tax Act (the “Act”) have been satisfied.
[9]
In making such
submissions, counsel directed the Court to the line of cases reflective within Hovasse
v. Canada, 2011 TCC 143, 2011 DTC 1115, which indicates that there is no
requirement for parties to have actually executed a written separation
agreement in order for same to satisfy the provisions of the Act where
the terms of that separation agreement are otherwise sufficiently clear and
precise.
[10]
Counsel for the Respondent
submitted that there was no evidence that the payments made in 2003, 2004 and
2005 were intended as support payments in any form until the Minister reassessed
the taxpayer in 2007 and disallowed the salary, wages and office expenses
initially claimed. Moreover, counsel submitted that there was no evidence of a written
agreement or Court Order existing prior to 2009 which could possibly provide
sufficient evidence, precision or direction to the Court. As such, no rational
determination may be made of regular, periodic payments made on account of
support payments nor of a direction or intention between the parties concerning
deductibility by the payor and inclusion into income for the payee. In
addition, counsel for the Respondent directed the Court to a line of cases
which minimally requires the production of a written memorandum in some form
reflecting details of payments and reference to a legal support obligation.
III. Analysis and Decision
[11]
In order for the Appellant
to qualify for deduction of support payments under the Act, payments
must fall within the provisions of the definition of a “support amount” under subsection
56.1(4) which provides as follows:
“support amount” — “support amount” means an amount payable
or receivable as an allowance on a periodic basis for the maintenance of the
recipient, children of the recipient or both the recipient and children of the
recipient, if the recipient has discretion as to the use of the amount, and
(a) the recipient is the spouse or common-law partner or
former spouse or common-law partner of the payer, the recipient and payer are
living separate and apart because of the breakdown of their marriage or
common-law partnership and the amount is receivable under an order of a
competent tribunal or under a written agreement; or
(b) the payer is a legal parent of a child of the recipient
and the amount is receivable under an order made by a competent tribunal in
accordance with the laws of a province.
[12]
The issue of a Court Order
is not relevant in this Appeal since same has not been pleaded nor factually asserted
by the Appellant for the relevant period. The sole issue to be determined is
whether the alleged verbal agreement, possibly reflected at some point by a
memorandum in the Urdu language or a verbal agreement buttressed by direct
evidence and part performance, meets the threshold established by the
definition referenced above.
[13]
The language of the
definition in subsection 56.1(4) of the Act is unequivocal. The
agreement must be in written form. There is absolutely nothing by way of
documentary evidence between the parties reflecting a meeting of the minds as to
periodic payments of support amounts in 2004 and 2005. Regrettably, the Appellant
was not able nor willing to push the point of reflecting an arrangement in
written form. This may be reflective of his concern and the physical and mental
condition of his ex-spouse.
[14]
The matter before the
Court is similar to the case of Chappell v. Canada, 2004 TCC 39, [2003]
T.C.J. No. 767. Specifically, Justice Campbell Miller of this Court stated the
following at paragraphs 8 and 9;
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.
[15]
Even more starkly in
this case perhaps is that there is not only no composite written agreement in
2004 or 2005, but there is absolutely no tangible evidence in any written form
that the parties settled as between themselves the terms of regular, periodic
support payments payable by the Appellant to his spouse and/or stepdaughter. In
fact, there is countervailing evidence that the ex-spouse denies the existance
of such payments. Further, while the ex-spouse’s medical condition may impede
an adverse inference through her absence, the stepdaughter also did not testify
as to the mutual intention of the alleged support payments she purportedly
received. Given the absence of such evidence, in order to hold that a compliant
support payment arrangement did exist in the relevant period would require the
Court to imagine facts which simply did not exist in 2004 or 2005.
[16]
While such a creation may
satisfy the present best intentions of the Appellant, in light of the dearth of
evidence presented, it would render the textual and purposeful provisions of
the Act meaningless. Accordingly, the Court is left with no alternative
but to dismiss the Appeal with costs awarded to the Respondent.
Signed at Ottawa, Canada, this 11th day
of June 2013.
“R.S. Bocock”
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