William Cottrell v. Minister of National Revenue, [1990] 2 CTC 2031, 90 DTC 1581

Taylor, T.C.J.:—This is an appeal heard in London, Ontario, on May 4, 1990, against an income tax assessment for the year 1985 in which the Minister of National Revenue disallowed an amount of $1790 as a deduction for "maintenance". "Minutes of settlement" between Mr. Cottrell and Mrs. Cottrell were signed June 12, 1985, and the payments at issue were those made prior to that date. The respondent agreed that the "minutes of settlement” constituted a "written agreement" as that term is used in the relevant section of the Income Tax Act (the "Act"). In the reply to the notice of appeal, the respondent relied inter alia, upon subsection 60(b) of the Act:

B.6 The Respondent relies, inter alia, upon subsection 60(b) of the Income Tax Act, R.S.C. 1952, Chapter 148, as amended (the "Act").

In claiming the deduction the appellant relied upon clause 5 of the minutes of settlement referenced above:

The Petitioner and the Respondent acknowledge and agree that they have been living separate and apart since the month of September, 1983. The Petitioner further acknowledges and agrees that the Respondent has paid to her support in the following monthly amounts;

January 1984 to July 1984 inclusive $391.14 per month

August 1984 to October 1984 inclusive $402.00 per month November 1984 to date inclusive $380.00 per month." [1]

Counsel for the appellant pleaded the case using subsection 60.1(3) of the Act, and the jurisprudence relevant thereto, in particular that of Syrier v. M.N.R., [1989] 1 C.T.C. 2405 ; 89 D.T.C. 256. From Syrier, supra, counsel regarded the following phrase on pages 2407-2408 (D.T.C. 258) as significant and supportive:

Mr. Teichman, counsel for the respondent, argued that subsection 60.1(3) is intended to permit payor and payee to put into the form of a written agreement the framework or basis on which payments previously made were in fact made. The provision does not, he said, permit the parties to make an agreement which recharacterizes payments made in the past.

It was counsel's view that the Court should look at this matter with a certain degree of objectivity as outlined in Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536; [1984] 1 C.T.C. 294; 84 D.T.C. 6305. In counsel's view, the cited clause from the “minutes of settlement", supra, could only be interpreted as fulfilling the condition in section 60.1 of the Act using the words "pursuant to".

For counsel for the respondent the situation was quite clear—merely reciting in the “minutes of settlement" above the uncontested fact that such payments had been made prior to the signing of these minutes did not have any direct relationship to the term “pursuant to" used in subsection 60.1(3) of the Act. In effect, counsel's main point seemed to be that to take advantage of subsection 60.1(3) of the Act, the following words probably should be included in the written agreement ”. . . provides that an amount is to be considered . . . pursuant thereto . . ." (see subsection 60.1(3)).

Analysis

Subsection 60.1(3) of the Act reads as follows:

Prior payments. 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.

First, I should note that Syrier, supra, did not touch on the point at issue in this matter, but only the "interest" or “alleged interest" on the amounts called for in the written agreement. The "interest" amounts claimed simply were not called for in the original agreement and even the characterization of the amounts as interest and the rewriting of the original agreement did not meet with the approval of the Court in that case. Leaving aside for the moment the interpretation of subsection 60.1(3) provided by counsel for the respondent (cited above), I should like to quote with approval the comments of the learned judge on pages 2408-2409 (D.T.C. 259) in Syrier, supra, in giving his judgment:

The subsection was intended to permit within certain time limitations, the deduction of spousal support payments made during the period between the separation of the spouses and the formation of the separation agreement or making of the court order for support. The fiction introduced by the deeming clause was never intended to extend, at the whim of the parties, the type of payment which is the subject of paragraph 60(b) and 56(1)(b) deductions from and inclusions in income.

It would appear to me that the learned judge in Syrier, supra, held a view generally consistent with that put forth by counsel for the respondent, supra, in that case. I can think of no more reasonable interpretation to be placed on section 60.1 of the Act (including the somewhat repetitious and redundant subclauses (a) and (b) thereof) than that the subsection was indeed "intended to permit—the deduction of spousal support payments made during the period between the separation of the spouses and the formation of the separation agreement—" (see Syrier, supra, at page 2408 (D.T.C. 259)) (emphasis mine). The inclusion in the "written agreement" of some reasonable reference to "support" while the parties were living apart should suffice to bring into play the provision of subsection 60.1(3) of the Act. That is precisely the situation in this matter before the Court.

The appeal is allowed and the matter referred back to the respondent for reconsideration and reassessment. The appellant is entitled to party-and-party costs.

Appeal allowed.