Nicole St-Onge v. Minister of National Revenue, [1981] CTC 2981

Guy Tremblay [Translation]:—This case was heard at Montreal, Quebec on January 21, 1980.

1. Point at issue

The question is what part of the sum of $4,800 received by the appellant from her husband, the third party, during each of the 1975, 1976 and 1977 taxation years, should be included in calculating the appellant’s income. This part of the sum of $4,800 will be admissible as a deduction in computing the income of the deemed appellant.

2. Burden of proof

The appellant has the burden of showing that the respondent’s assessment is incorrect. This burden of proof derives not from one particular section of the Income Tax Act, but from a number of judicial decisions, including the judgment of the Supreme Court of Canada in Johnson v MNR, [1948] CTC 195; 3 DTC 1182.

since, moreover, a judgment was delivered on November 16, 1979 requiring Mr Victor St-Onge, the appellant’s husband, to be impleaded in this appeal with the right to submit his own appeal, the said Mr St-Onge accordingly becomes the deemed appellant from a notice of assessment deemed to have been issued against him, precluding him from deducting from his income the amounts which the appellant refuses to include in her own income. This judgment was delivered pursuant to an application by the respondent made on November 5, 1979 in accordance with paragraph 174(3)(b).

The deemed appellant has the burden of showing that he is entitled to deduct from his own income the amounts which the appellant contends should not be included in her income.

The judgment in the case at bar shall apply to both parties.

3. Facts

3.01 The appellant married the third party on December 19, 1959.

3.02 The parties were still joined in marriage during 1975, 1976 and 1977.

3.03 In 1973, the parties resided at Port Cartier, where the third party, who is a lawyer, was the fiscal director of Quebec Cartier Mining. Following problems between the two parties and a stay in the Port Cartier hospital, the appellant went to Montreal on December 23, 1973 for a rest at the home of her own parents.

3.04 On the advice of her lawyer, Mr Paul F Renault, she decided not to return to Port Cartier and to stay in Montreal, at least for a time.

3.05 A typed document with the heading “Agreement”, dated January 18, 1974, was filed as Exhibit A-1. This document reads as follows:

The words “as alimony” were added by hand and the initials VST, for Victor St-Onge, were written in the left-hand margin.

The figure “18” before the word “January” was apparently placed there by the third party.

3.06 Another agreement was filed as Exhibit A-2, a photocopy of the typed portion of Exhibit A-1, almost identical with Exhibit A-1 in other respects, but dated January 22, 1974 and reading as follows:

AGREEMENT

By mutual agreement, for an indefinite but temporary period, Mrs Victor VST St-Onge will stay in Montreal and Mr Victor St-Onge will send her the sum NSTO of four hundred dollars ($400) a month (as alimony) in the last week of

every month, beginning January 1974.

AND WE HAVE SIGNED:

MONTREAL, (22) January, 1974

(signed) Constance Brown	(signed) Mrs Nicole St-Onge
Witness	Mrs Victor St-Onge
(signed) Arthur Camper	(signed) Victor St-Onge
	Mr Victor St-Onge

On this document as well, the words “as alimony” were added by hand, but in addition to the initials of the third party there are, immediately below, the letters NStO (that is, the appellant’s initials). The latter argued that the number “22” before the word “January” was placed there by her.

3.07 It is quite clear on the face of these documents, A-1 and A-2, that Exhibit A-2 is not a photocopy of Exhibit A-1 (except with regard to the typed portion); the date was changed and the appellant simply added her initials.

The signatures of the parties and the witnesses, the addition “as alimony”, and the initials are not writings exactly like those on Exhibit A-1. The differences are significant not in that someone else signed in place of the parties and the witnesses, using their signatures, but in that these writings are not the same as those appearing on Exhibit A-1. Thus, the letter “e” at the end of the word St-Onge in the appellant’s signature is an open “e” in Exhibit A-1 and closed, almost like an “i”, in Exhibit A-2. Also, the location of the handwritten entries in comparison with those that were typed is not the same on Exhibit A-2 as on Exhibit A-1.

3.08 The appellant stated that she signed the said agreement in the office of Mr Renault. She maintained that when she signed the words “as alimony” had not been added. Additionally, she said that after initialling and dating document A-2, she returned it directly to her husband.

3.09 A letter from Mr Renault, dated January 22, 1974 and addressed to Mrs Conrad Archambault in Florida, was filed as Exhibit A-3. Mrs Archambault is the appellant’s mother. This letter reads as follows:

Please find enclosed a photocopy which I have been able to get Mr St-Onge to Sign.

I think that, if proceedings are going to be taken, this document should help Mrs St-Onge.

The negotiations with Mr St-Onge were quite short.

3.10 A copy of another letter from Mr Renault, also dated January 22, 1974 and addressed to Mr Victor St-Onge, was filed as Exhibit A-4. It reads

Please find enclosed a copy, duly signed by your wife and yourself, of the agreement concluded.

I hope everything will work out.

3.11 The third party filed, as Exhibit TP-1, a copy of a typed document which is exactly the same as the typed portion of Exhibits A-1 and A-2. It is dated January 18, 1974.

However, it contains the following handwritten additions:

(a) under the word “agreement”, there occur the words “of separation”, and handwritten in the left-hand margin, alongside the words “of separation”, there are the initials of the appellant and of the third party;

(b) the words “as alimony” were also added by hand after the word “month” as in Exhibits A-1 and A-2; alongside these words, in the lefthand margin, there are the initials of the appellant and of the third party;

(c) there are also the signatures of the parties and of the witnesses, the latter being the same persons as on Exhibits A-1 and A-2.

3.12 The Board notes that the additions and the signatures are not the same writings as those appearing on Exhibits A-1 and A-2, in the sense already explained in para 3.07.

3.13 In his testimony, the third party contended that he signed on January 18, 1974, before Mr Renault and in the latter’s office, several copies of the agreement prepared by Mr Renault, and that the addition “as alimony” was made at that time. The appellant was not present and had not yet signed the copies.

After receiving from Mr Renault, in his letter of January 22, the copy duly signed by his wife, he decided to add after the word “agreement” the words of “separation”.

3.14 In a letter a photocopy of which is filed as Exhibit TP-2, dated January 28, 1973 (1973 is an error, it should in fact read 1974), the third party wrote the appellant. The first paragraph reads as follows:

I have just received a copy of our agreement. I am returning it to you for you to put your initials in the margin alongside the correction made, January 18, and by the title, which I have just clarified. This is important for tax reasons, and I would like you to return it to me duly initialled in both places.

The content of a further paragraph does not relate to the matter under appeal.

3.15 The third party also filed three other documents, and objections were made to the filing of these. The Board allowed them to be filed subject to a later decision, when the case is taken under advisement.

3.15.1 The first of these documents is the letter of February 5, 1974, by which the appellant returned agreement TP-1 to the third party after initialling it. This letter was filed as Exhibit TP-3.

3.15.2 The next document is another photocopy of the agreement: this photocopy is of Exhibit TP-1 (partly typed and partly handwritten, and initialled by the third party), except that the appellant’s initials are not on it. It is undoubtedly a photocopy which the third party made of agreement TP-1, before sending it to the appellant in his letter of January 28, 1974 (TP-2). The writing is the same and the location of the words in comparison with the typed portion is also. Once again, there is no doubt that TP-4 is a photocopy of TP-1, but without the appellant’s initials.

3.15.3 Finally, there is a letter from Mr Renault to the third party, dated December 31, 1973. He informs the third party that the appellant will not be returning to Port Cartier. He writes:

... I really do not think it is possible for you to live together any longer. After speaking to her again this morning, it seems unavoidable for you to separate.

3.15.4 The objections to the filing of these documents are based on their alleged irrelevance to the substance of the matter.

The Board, however, admits them on the following basis: because of the considerable number of agreements, four already filed, as Exhibits A-1, A-2, TP-1 and TP-4, all of which are different from each other, it is important for the Board to familiarize itself with these documents so that it can determine at least which one should be used, and then exclude from consideration facts which are not relevant.

4. Act—case law—comments

4.1 Act

The provisions of the Income Tax Act concerned in the case at bar are subparagraphs 56(1)(b) (relating to the appellant), 60(b) (relating to the third party) and subsection 248(1), “Separation agreement”. They read as follows:

56. (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

(b) any amount received 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 the recipient was living apart from, and was separated pursuant to a divorce, judicial separation or written separation agreement from, the spouse or former spouse required to make payment at the time the payment was received and throughout the remainder of the year.

60. There may be deducted in computing a taxpayer’s income for a taxation year such of the following amounts as are applicable:

(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.

248. (1) In this Act, “separation agreement” includes an agreement by which a person agrees to make payments on a periodic basis for the maintenance of a former spouse, children of the marriage, or both the former spouse and children of the marriage, after the marriage has been dissolved whether the agreement was made before or after the marriage was dissolved.

4.2 Case law

The parties referred the Board to the following cases:

1. Perley C Smith v MNR, [1979] CTC 3055; 79 DTC 827;

2. J V R Gagné v MNP, [1976] CTC 2163; 79 DTC 1125;

3. Robert Fleury v MNP, [1979] CTC 2878; 79 DTC 476;

4. Eddie D Hardy v MNP, [1978] CTC 3120; 78 DTC 1802:

5. John David Milburn v MNP, [1979] CTC 2007; 79 DTC 24;

6. Daniel Kapel v MNP, [1979] CTC 2187; 79 DTC 199;

7. Albert Charlier, Court of Appeal of Québec, March 13, 1978;

8. Thomas J Collins v MNP, [1976] CTC 2048; 76 DTC 1056;

9. Dr Edouard D Gagnon v MNP, 41 Tax ABC 58; 66 DTC 319. 4.3 Comments

A. The agreement valid between the parties: TP-1

4.3.1 As a consequence of the filing of the various agreements, A-1, A-2, TP-1 and TP-4, and as a consequence of the analyses of these documents made in paras 3.07, 3.12 and 3.15.2, the Board concludes that the agreement which must be regarded as the agreement valid between the two parties is Exhibit TP-1 (see para 3.15.2).

4.3.2 Counsel for the appellant argued that, in Exhibit TP-1, the initials of his client by the additions made by the third party were made in the absence of her counsel, and that she was thus unaware of the consequences of adding her initials.

First, the adding of the words “as alimony” by the third party was done on January 18 in the office of the appellant’s lawyer and in the presence of the said lawyer. When she went to see her lawyer on January 22, 1974 the appellant, to indicate her agreement to the said addition, added her initials on at least one copy of the agreement, since this can be seen on Exhibit A-2. She was fully aware then of what she was doing — at least, her lawyer was there to tell her.

The fact that she initialled another copy (Exhibit TP-1) early in February represents a logical sequel to her action already taken the preceding January 22 in her lawyer’s presence.

Furthermore, there was no evidence that at the end of January and in early February 1974 the appellant was not in full possession of her faculties and was not free to refuse to sign.

The initials by the addition of the words “of separation” after the title “agreement” were also placed there by the appellant in full knowledge of the facts early in February 1974.

4.3.3 The only doubt that remains is as to the wording of the agreements: Mrs St-Onge stated (para 3.08) that when she affixed her signature at the bottom of the agreement, the words “as alimony” had not been added. This is undoubtedly a lapse of memory on her part, for how could she have put her initials on the agreement (Exhibit A-2) which contains the said addition? Additionally, it seems clear that she did not put her initials on all the copies. They are not to be found on agreement A-1, or on agreement TP-4, of which the third party made a photocopy before sending it to the appellant for her to initial it. This agreement became TP-1.

4.3.4 Finally, according to the evidence agreement TP-1 is the last in the chronological order to have been accepted (in February 1974) and accepted legally: it is accordingly the agreement which would ordinarily be regarded as valid between the parties.

4.3.5 Exhibit TP-1, the agreement accepted by the Board as being the most recent and the only one valid between the parties, reads as follows (the additions made by hand are the words in parentheses):

AGREEMENT

(VSO) (of

(NSTO) Separation)

By mutual agreement, for an indefinite but temporary period, Mrs Victor (VSO) St-Onge will stay in Montreal and Mr Victor St-Onge will send her the sum (NSTO)of four hundred dollars ($400) a month (as alimony) in the last week of

every month, beginning January 1974.

AND WE HAVE SIGNED:

MONTREAL, (22) January, 1974

(signed) Constance Brown	(signed) Mrs Nicole St-Onge
Witness	Mrs Victor St-Onge
(signed) Arthur Camper	(signed) Victor St-Onge
	Mr Victor St-Onge

B. Does agreement TP-1 comply with the conditions of paragraphs 56(1 )(b) and 60(b)?

4.3.6 Even assuming that all the additions, signatures and initials are valid and legal in the agreement filed as Exhibit TP-1, does this mean that the said agreement must therefore be regarded as an agreement which complies with the conditions of paragraphs 56(1 )(b) and 60(b)?

Counsel for the third party and the respondent argued that it should. Counsel for the appellant, on the other hand, argued that it should not, although he admitted that only one condition was not met of those specified by paragraph 56(1 )(b). Paragraph 60(b) also lays down the same conditions. They may be listed as follows:

(a) the payment of an amount made and received;

(b) pursuant to a written agreement (or a judgment or order of the Court);

(c) on a periodic basis;

(d) as alimony;

(e) by one spouse to another;

(f) for the needs of the recipient or for their children;

(g) with the said spouses living apart under a written separation agreement (or a judgment or order), at the time the payment was made and received and throughout the remainder of the year.

Counsel for the appellant argued that the last requirement had not been met.

4.3.7 According to learned counsel:

(a) agreement TP-1 is not a separation agreement in the ordinary sense: the said agreement TP-1 provides that it is only to be a temporary agreement (“indefinite but temporary”, states the text of the agreement), and a separation agreement cannot be temporary;

(b) further, according to counsel, the agreement provides that “Mrs Victor St-Onge will stay in Montreal”, whereas the evidence established that the appellant left Montreal and went to rest in the North at Ste-Adèle. As the agreement must be interpreted strictly, and one clause was breached, it ceases to be valid. The payments received no longer meet the conditions of the Act.

4.3.8 The Board does not believe that the interpretation given by counsel for the appellant to the words “will stay in Montreal” can be admitted.

It was established that until December 1973 the appellant resided with her husband at Port Cartier. In December 1973, she went to live with her mother in Montreal. The Board feels that in providing that “by mutual agreement, for an indefinite but temporary period, Mrs. Victor St-Onge will stay in Montreal” — the chief meaning of these words is that she will not be obliged to return to Port Cartier, but will stay in Montreal where she has already gone. The Board feels that unquestionably the substance of the agreement (since this is a contract, what matters is the substance) was not that the appellant should remain a “prisoner” in Montreal. Even in a city as large as Montreal, one has to be able to leave. Imposing such a condition would be mental cruelty, a clause contrary to public order and morality, and this could not be admitted as a valid clause in a contract of this kind, especially when a single departure would cause the appellant to lose her entitlement to alimony. However, it should be noted that such an invalid clause cannot invalidate the entire contract. Aditionally, the third party denied having given such a meaning to this clause. Even if that was his intent, the third party excused the offending trips to ste-Adele, since he continued to pay her the sum agreed upon. Can the appellant cite this as a basis for not being taxed on the amounts received? Does this not mean that she is relying on her own turpitude, thus infringing a fundamental rule of law? The Board therefore rejects the argument of counsel for the appellant on the interpretation given.

4.3.9 The argument of counsel for the appellant that agreement TP-1 is only a temporary agreement, and that therefore it is not a “separation agreement” within the meaning of the Act, would appear at first sight to be more substantial.

If the intention had been for agreement TP-1 to be valid for a definite period (as for example two years), the parties would have said so. As the iperiod is not definite, it follows that it must be indefinite. The agreement being indefinite, it can only be terminated if one party wishes to terminate it. According to the evidence, neither party indicated such an intent.

Can an agreement of this kind be indefinite in practice? It would not appear so. How is one to determine that it is only valid for two years, or for some other period? The problems which are usually the cause of a separation of the spouses are of such a nature that it cannot be predicted when they will be resolved and the common domicile resumed, when the person receiving a payment will cease to need it, or the person making it will no longer be able to do so.

4.3.10 What in fact is the meaning of the phrase “indefinite but temporary”? According to the Petit Larousse Illustré, 1973 edition:

“period” means “space of time”;

“indefinite” means “that which is not definite or precise”;

“temporary” means “that which lasts only for a certain time”.

A period as such can only be temporary. The word “temporary” would therefore seem to be unnecessary. Even if it is kept, however, the expression should be a “temporary indefinite period”, and not “an indefinite but temporary period”. The latter expression would seem to be poorly chosen.

In its chapter “Of the Lease and Hire of Work”, the Civil Code of Quebec uses a very similar expression: “an indefinite period of time”, in Article 1668. This article provides how a contract of lease or hire of work shall terminate. Article 1667 limits the time of a contract of lease and hire of work. These two articles read as follows:

1667. The contract of lease or hire of personal service, can only be for a limited time, or for a determinate undertaking.

It may be prolonged by tacit renewal. — N 1780.

1668. (Am 1949, c 69). It is terminated by the death of the party hired or by his becoming without fault, unable to perform the services agreed upon.

It is also terminated by the death of the party hiring, in some cases, according to circumstances.

In the case of a domestic; servant, journeyman or labourer hired by the week, the month or the year, but for an indefinite period of time, his contract may be terminated by a notice given by one of the parties to the other, of a week, if the contract is by the week; of two weeks if the contract is by the month; of a month if the contract is by the year. — N 1795.

The emphasis is added by the Board.

The French version renders the words italicized by “mais pour un laps de temps indéfini”.

The third paragraph of this article was added in 1949. There had previously been no provision in the law regarding the termination of an indefinite contract. However, the matter had been dealt with by the courts.

In Le Droit civil canadien, published in 1906, and thus well before the addition of the third paragraph, P B Mignault mentions at the bottom of the page the problem of the indefinite contract which is not covered in the Code (Volume 7, 375):

“I would say that the undertaking terminates by the expiry of the agreed term; but quid, when the term of the undertaking is indefinite? Neither of the parties may then terminate it without giving notice to the other within a reasonable time (see as to this Wurtele, J, Paquin v City of Hull, II LN 355). In the case of an undertaking from year to year, the Court of Appeal has even held that the employee was entitled to a notice of three months before the end of the year: McGreevy & Les Commissaires du Havre de Québec, RJQ, 7 QP 17.

I hasten to add that, in certain cases specially provided for by the Act or by municipal by-laws, the notice required to terminate the undertaking must be given within a specified time (see for example, s 5615 RSPQ, and s 223 of the Education Act, 62 Vict, c 28).

In Paquin v City of Hull, Wurtele, J said:

The next question is whether either the employer or the employee can, at will and without notice, terminate an engagement of which the duration is indeterminate? Article 1667 declares that the contract of lease and hire of personal services can only be for a limited term, and when, therefore, the term is not fixed by the engagement it must be in the power of either party to put an end to it at will.

The Board upholds the assessment made and dismisses the appeal of the appellant.

5. Conclusion

The appeal of the appellant is dismissed and the appeal of the third party, the deemed appellant, is allowed, and the whole is referred back to the respondent for reassessment in accordance with the foregoing reasons for judgment.

Appeal dismissed. Appeal of third party allowed.