David Roy McMillan v. Her Majesty the Queen, [1995] 1 CTC 2678, 95 DTC 791

Archambault J.T.C.C.:-Mr, David McMillan faced a difficult problem in 1990. Separated from his wife, he had to pay a maintenance allowance to his wife for the benefit of his two children. Because his personal income fluctuated, he could not commit to a fixed, pre-determined amount. He agreed to pay a minimum of $18,000 per year (subject to indexation) up to a maximum of $42,000. In 1990 he paid as maintenance allowance $39,000 and claimed this amount in computing his income for the 1990 taxation year. The Minister of National Revenue (Minister), in reassessing Mr. McMillan, disallowed an amount of $20,190. In effect, he only allowed $18,810 as a deductible maintenance, a sum representing the $18,000 after indexation. The main issue before this Court is whether the amount of $20,190 was paid pursuant to a written agreement.

The Minister also reassessed Mrs. Simone McMillan and deleted from her income this amount of $20,190. He applied for an order joining Mrs. McMillan as a party to Mr. McMillan’s appeal pursuant to subsection 174(3) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the ’’Act"), and the Chief Judge of this Court granted such order on January 24, 1994. Although Mrs. McMillan was present at the hearing, she did not intervene in the proceedings.

Facts

Mr. and Mrs. McMillan were married in 1979. They have two children, Chad, born in 1980 and Angela, born in 1982. Mr. and Mrs. McMillan separated in 1987. Lawyers prepared a written agreement (first agreement) dated January 1, 1989 and stipulated that Mrs. McMillan would have the custody of the two children and that Mr. McMillan would pay for each child a sum of $750 payable monthly. This amount was to be adjusted annually based on the percentage variation in the consumer price index for the province of British Columbia. Mrs. McMillan was working as a salesperson and could take care of herself. During the whole of 1990 taxation year, Mr. and Mrs. McMillan were living separate.

It appears that the maintenance allowance was insufficient to maintain an adequate standard of living for the children. Mr. McMillan, a stockbroker, was prepared to pay a higher allowance but could not commit to any specific amount because his employment income (commissions) fluctuated not only from year to year, but also from month to month. It depended upon how well (and presumably how bad) the securities market was doing.

Mr. and Mrs. McMillan, without the assistance of any lawyers prepared an agreement (amending agreement) dated January 31, 1989. The most relevant paragraph is the following one:

Due to the fluctuating nature of David Roy-Clark McMillan’s income (commission only), the amounts will vary from month to month and year to year, and will increase and decrease depending on his income, but will not be less than $1,500 per month payable at the beginning of each month. In addition a children’s clothing allowance will be paid as and when required by Simone Marie McMillan. Additional funds shall be paid to Simone Marie McMillan as requested by her, for whatever purpose, for the benefit of her and or the children, upon verbal agreement by David Roy-Clark McMillan. The maximum amount payable in any given year will not exceed $42,000.

[Emphasis added.]

Mr. McMillan acknowledged that this agreement was not signed on January 31, 1989. He could not remember exactly when they signed it. He thought it was late in 1989 or early in 1990.

Analysis

The relevant statutory provision for this appeal is paragraph 60(b) of the Act which reads as follows:

60(b) an amount paid by the taxpayer in the year, pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written agreement, as alimony or other allowance payable on a periodic basis for the maintenance of the recipient thereof, children of the marriage, or both the recipient and children of the marriage, if he was living apart from, and was separated pursuant to a divorce, judicial separation or written separation agreement from, his spouse or former spouse to whom he was required to make the payment at the time the payment was made and throughout the remainder of the year.

To be deductible a maintenance allowance must satisfy several conditions, one of which is that it be paid pursuant to a written agreement. [1]

There is no doubt the sum of $18,810 was an amount paid pursuant to the first agreement. With respect to the amending agreement, we do not know exactly when it was signed. This document does not accurately reflect what took place. We do not know therefore at what time the additional amount could have been considered payable pursuant to this amending agreement. However, given the conclusion that I have reached, this issue is an academic one here.

Even if I were to assume that the amending agreement was in force on January 1, 1990, I cannot conclude that the additional maintenance allowance ($20,190) was paid pursuant to such agreement. As counsel for the Minister argued, this is only an agreement to agree. The amending agreement clearly provides that "additional funds shall be paid upon verbal agreement". I do not believe that Mrs. McMillan could enforce this agreement before the courts. It can only be considered as an incomplete undertaking.

Mr. McMillan is not committed to any specific amount and there is no formula allowing a court to decide what Mrs. McMillan is entitled to. In Anson’s Law of Contract, [2] professor Guest states:

But the contract will clearly be incomplete if a material term not agreed upon can be determined only by a future agreement between the parties. So in May & Butcher v. The King, where the suppliants agreed to purchase from the Crown all its surplus tentage "at such price as should be agreed upon between them as the quantities of tentage became available for disposal and were offered for purchase", the House of Lords held there was no concluded contract.

In support of his position, counsel for Mr. McMillan relied on a decision of this Court in Nelson v. The Queen, [1994] 1 C.T.C. 2031, 94 D.T.C. 1003 (T.C.C.). Here, the taxpayer had agreed to pay as maintenance an amount representing two-thirds of the taxpayer’s net monthly earnings. Deputy Judge Rowe concluded that this constituted a maintenance allowance capable of being fixed. I agree with this decision which is, in my view, in conformity with the one rendered by the Supreme Court of Canada in Gagnon v. The Queen, [1986] 1 S.C.R. 264, [1986] 1 C.T.C. 410, 86 D.T.C. 6179. [3] However, the decision in Nelson is of no assistance to the position of Mr. McMillan because there is a very important distinction here. The amending agreement does not provide for any formula which would allow a court (including this one) to decide what the maintenance allowance is. The fact that this amount cannot exceed $42,000 does not determine what amount Mr. McMillan was bound to pay. Before asking a court to enforce her right, Mrs. McMillan would have to establish it.

The same comments can be made about Lay v. The Queen, [1993] 2 C.T.C. 2916 (T.C.C.), a case which counsel for Mr. McMillan relied on. In Lay, Judge Mogan of this Court concluded that an agreement to pay up to $510 to the extent that money was deposited in a bank account coming from the leasing of an apartment block was an enforceable undertaking. There, it was possible to determine the amount. Here, we do not know how to determine the amount of the additional maintenance allowance. It is quite clear that Mr. McMillan did not know either since the amending agreement specifies that this amount has to be payable upon verbal agreement. He was to consider his level of remuneration; however, this is not sufficient to find an enforceable undertaking. In conclusion, the sum of $20,190 was not an allowance paid pursuant to a written agreement. It was pursuant to a verbal agreement.

I can sympathize with the dilemma that Mr. McMillan was facing in 1990. He wanted to provide adequate maintenance allowance for his children to maintain their standard of living. Given the fluctuation in his income, he could not commit to a specific amount. It is unfortunate that the compliance of the requirements of the Act should add burden to a difficult situation.

For the above reasons, the appeal of Mr. McMillan is dismissed with costs and the assessments of Mr. and Mrs. McMillan for the 1990 taxation year are confirmed.

Appeal dismissed.