Gordon R Renwick v. Minister of National Revenue, [1981] CTC 2607

D E Taylor:—This is an appeal heard in the City of London, Ontario, on June 24, 1981 against income tax assessments for the years 1975, 1976, 1977 and 1978. The issue is detailed in the notice of appeal, and the reply to notice of appeal in the following manner:

Brief Statement of Facts:

1. Gordon Renwick separated from his ex-wife, Merle Renwick, subsequent to which they executed a separation agreement on January 1, 1971.

2. By the terms of the said agreement Gordon Renwick agreed to pay a total of $7,200 annually to his wife for her maintenance and the maintenance of the five children of the marriage.

3. Since separating from his ex-wife, Gordon Renwick paid substantially more for the maintenance of his family than was required under the 1971 separation agreement.

4. The said increases in payments were made pursuant to agreements reached by the parties from time to time and evidenced by memoranda in writing and further acknowledged by the parties through the 1975, 1976, 1977 and 1978 taxation years.

5. The payments were included in the income of Mrs. Merle Renwick and properly deducted by Gordon Renwick in each of the taxation years for which he

was reassessed.

Reasons in Support of Appeal

1. The Minister of National Revenue failed to take account of a written agreement between Gordon and Merle Renwick under which Gordon Renwick properly deducted the payments in question.

From Reply to Notice of Appeal:

In computing his income for the relevant taxation years, the appellant sought to deduct the following sums on account of support payments for the benefit of

his former spouse, Merle Irene Renwick, and their children:

1975	$11,333
1976	$16,100
1977	$18,300
1978	$22,452

— by reassessment, confirmation of which was dated June 19, 1980, the Respondent permitted the Appellant to deduct the sum of $7,200 in each year as alimony or maintenance payments, and did not permit him to deduct the following

amounts:

1975	$ 4,133
1976	$ 8,900
1977	$11,100
1978	$15,252

— In reassessing the appellant as aforesaid, the respondent relied, inter alia, upon the following findings or assumptions of fact:

(a) the facts hereinbefore admitted;

(b) by Order of the Supreme Court of Ontario dated the 20th day of January 1972, the appellant and his spouse were divorced; and it was further ordered, by Clause 2 thereof, that the appellant was to pay to Merle Irene Renwick for her own maintenance the sum of $200 per month, and, by Clause 4 thereof, that the appellant was to pay to Merle Renwick the sum of $400 per month for the maintenance of the five infant children of the marriage;

(c) The appellant paid the sum of $7,200 in each of 1975, 1976, 1977 and

1978, pursuant to clauses 2 and 4 of the aforementioned Decree;

(d) the terms of the Order dated January 20, 1972, were not varied or amended by decree, order, judgment or written agreement prior to January 15, 1979.

Mrs Merle Renwick had been subpoenaed as a witness for the respondent and with the advice of her separate counsel present at the hearing, Mr Peter Howard (law student) of Stikeman, Elliott, Robarts & Bowman of Toronto, she tendered the following documents related to the issue:

A-1 Separation Agreement dated January 1, 1971;

A-2 Decree Absolute dated January 20, 1972;

A-3 Minutes of Settlement dated November 17, 1978;

A-4 Order dated January 15, 1979;

A-5 Individual Income Tax Returns of Mrs Merle Renwick re: 1975 to 1978 taxation years inclusive;

A-6 Statement of expenses — 1976 taxation year;

A-7 Statement of expenses for 1977 taxation year (also 1978).

The testimony of Mrs Renwick was that except for minor discrepancies which could have resulted from extra payments received for Christmas, she did not disagree with the amounts which the appellant claimed he had paid to her. She agreed that over the years there had been discussions regarding the inadequacy of her income (alimony or maintenance) to meet her expenses, and that on a regular basis Mr Renwick had increased the amounts involved from the basic amounts indicated in the original agreements. In 1976 and again in 1978, she had made efforts through legal firms to have these payments further increased and she was successful, as evidenced by Exhibits A-3 and A-4 above in having this done. There had been a “retroactive” payment of some $3,852 to bring up to date the above agreements, but she was not certain whether that amount had been received in 1978 or early in 1979 after the official Court Order (Exhibit A-4). Her income tax returns showed that she had reported as “alimony” all the amounts received in the years 1975, 1976 and 1977, but had changed in 1978 to reporting only the $7,200 basic figure plus the “retroactive” amount of “3,852 for a total of $11,052 that year”. She was presented by counsel for the respondent with a copy of a letter (Exhibit A-8) addressed to her law firm from Revenue Canada which read in part as follows: (Mrs Renwick was unable to identify the document):

In the 1979 year Mrs. Renwick will include payments retroactive to October 1, 1978 paid in 1979 in accordance with the court order dated January 1979.

The changes are as follows:

1975	Previous Support Payments	$11,333
	Revised Support Payments	7,200
	Decrease	$ 4,133
1976	Previous Support Payments	$16,100
	Revised Support Payments	7,200
	Decrease	$ 8,900
1977	Previous Support Payments	$18,400
	Revised Support Payments	7,200
	Decrease	$11,200
1978	Previous Support Payments	$11,052
	Revised Support Payments	7,200
	Decrease	$ 3,852

Mr Renwick essentially agreed with the testimony of Mrs Renwick but added that he had always felt new ag reements and arrangements had been made as a result of their conversations and he had regularly increased the payments to keep up with inflation and added expenses as the children grew older.

The assertion of counsel for the appellant was that the agreement in question was Exhibit A-1 for purposes of the payments involved even though there was a decree absolute dated January 20, 1972 (Exhibit A-2) granting the divorce. According to counsel the “written agreement” provision in paragraph 60(b) of the Income Tax Act was fulfilled. Further, Exhibit A-1 had to be read as contemplating increases as necessary, that indeed there had been such increases, they were accepted, recognized and reported as income by Mrs Renwick and that Exhibits A-6 and A-7 served to augment the Original written agreement (exhibit A-1) by showing the basis for the continued increases. In essence, there was evidence in writing to support the conclusion that the payments claimed as alimony by the appellant were made “pursuant to a written agreement”. Counsel pointed out that in his opinion, if the amounts paid by Mr Renwick had been less than the stipulated $600 per month ($7,200 per year), this would not have prevented the Minister from regarding the amount paid as income or as a deduction re- spectively — so why should the principle be different for amounts paid which were greater than the stipulated amount, when receipt was acknowledged?

Counsel for the respondent disagreed that the matter fell under paragraph 60(b) of the Act and claimed that once the “Decree Absolute” was in effect as of January 20, 1972, the matter fell under paragraph 60(c) of the Act — in which there was no provision for a “written agreement”. However, in counsel’s opinion, even accepting any application of paragraph 60(b) (as proposed by counsel for the appellant) did not invalidate the Minister’s assessments — the only amounts deductible remained the basic $7,200 called for under either Exhibit A-1 or Exhibit A-2. There was no new “written agreement” altering this amount (Mrs Renwick’s tax returns, the submission of expenses, and the discussions between the parties did not alter this), and there was no new court order before the new amounts were established by Exhibits A-3 and A-4. As to the “retroactive” amount of $3,852, it was counsel’s view that it could only apply after January 15,1979 when the new court order (Exhibit A-4) (presumably altering Exhibit A-2) was in effect, and could not be deductible in 1978. The letter from Revenue Canada (Exhibit A-8) attested to this. Counsel quoted the recent case of MN Fl v Woodworth and Woodworth, 80 DTC 1461, as support for his view that since there was no documentation filling the condition of either paragraph 60(b) or 60(c) of the Act, the excess amounts were not deductible to the appellant.

The Board recognizes that this is a sensitive and delicate matter, one in which the appellant to a considerable degree increased the stipulated maintenance payments to Mrs Renwick and the children in order to more adequately look after them. Counsel for the appellant puts forward that surely the relevant section(s) of the Act could not require that on each occasion that the cost of living increased, it would be necessary for the parties to either prepare and sign a new “written agreement” or to apply for a new “court order” to make the adjustments. Certainly no such procedure is required in order for the payer to increase the payments, but such a procedure and the relevant supporting documentation are required in order that the payer benefit therefrom as a tax deduction. In the instant case, the appearance of agreement for increased payments, and the reference material associated therewith, are not adequate to alter the basic agreements — either Exhibit A-1 or Exhibit A-2 — upon which the deductibility of the payments depend.

With regard to the retroactive amount of $3,852 shown by Mrs Renwick as income in her 1978 tax return, the evidence is not clear when or how that was paid. While this was not raised at the hearing, it is my opinion that any part of the amount (or all of it) paid before November 17, 1978 (the date of the “Minutes of Settlement” — Exhibit A-3) would be of doubtful deductibility to Mr Renwick since no “written agreement” calling for these additional payments was in effect before that date. If the amount of $3,852 was paid between November 17, 1978 and December 31, 1978, it could well be argued that only the payment due on December 1, 1978 would be deductible to Mr Renwick, the payments due on October 1, 1978 and November 1, 1978 already being in arrears (even though there was no written agreement requiring them). All in all, without the Board being required to come to any definite conclusion as to when, or if, the amount should be deductible (and the lack of specific evidence would make that very difficult), there is little to suggest that the amount had direct relevance to the year 1978. Exhibit A-8 is of little, if any, probative value, and indeed perhaps adds only more confusion to the matter. Under the circumstances, the result must be that the appellant has not demonstrated that the amount of $3,852 is deductible to him in the year 1978.

The appeal is therefore dismissed.

Appeal dismissed.