Sarchuk T.C.J.:
The Appellant, Gerald J. McConnell has appealed from assessments of tax with respect to his 1986 and 1987 taxation years.
In filing his income tax returns for those taxation years, the Appellant claimed, inter alia, a deduction on account of alimony payments in the amounts of $60,000 and $88,857 and deductions on account of carrying charges in the amounts of $20,817 and $20,842, respectively. The Minister of National Revenue (the Minister) assessed to disallow deductions on account of alimony payments in excess of the amounts of $63,400 and $71,682, and to further disallow deductions on account of carrying charges in excess of the amounts of $11,057 and $6,501, respectively.
At the commencement of the hearing the Court was advised that the Appellant is entitled to deduct carrying charges in the amounts of $11,793 and $7,101 for the 1986 and 1987 taxation years, respectively. With respect to the remaining issue, the parties have agreed on the following facts:
1. The Appellant and his former spouse signed a written separation agreement (the “agreement”) dated December 7, 1982. A true copy is attached and marked as Appendix “A”.
2. In the agreement the Appellant covenanted, inter alia, to pay maintenance to his former spouse in the amount of $60,000, payable in periodic payments of $4,000 per month commencing the 1st day of January, 1983 and continuing on the first day of each and every month throughout the year with the exception of the payment due the 1st of July in each year which payment shall be in the amount of $16,000. The agreement also stipulated that the maintenance was to be increased annually by an amount equal to the percentage increase of the Consumer Price Index published by Statistics Canada.
3. At the time of signing the agreement the Appellant and his former spouse agreed that they would read the agreement to refer to Canadian funds.
4. In his T1 Tax returns filed for 1983, 1984, 1985 and 1986 the Appellant claimed a deduction for alimony payments in the amount of $60,000. In 1987 the Appellant’s claim was for $97,856.
5. The Appellant’s former spouse moved to the United States in 1985. On or about January 1, 1986 the Appellant provided 12 post-dated cheques, each for $4,000 to his former spouse. On or about June 30, 1986 his former spouse altered that month’s cheque by adding the letters “US” after the dollar amounts and continued to so alter the remaining 1996 post-dated cheques. A copy of this cheque is attached and marked as Appendix “B”. All such altered cheques cleared the Appellant’s bank account in U.S. funds.
6. On or about January 1, 1987 the Appellant provided 12 post-dated cheques for $4,000 U.S. to his former spouse. By this time the Appellant and his former spouse had agreed that they would read the agreement to refer to U.S. funds. All payments made by the Appellant to his former spouse thereafter and up to the present day have been made pursuant to this understanding that the agreement refers to U.S. funds and not Canadian funds.
7. Prior to June of 1986 the Appellant made all payments to his spouse in Canadian Dollars except for two instances:
(a) On May 14, 1984 the Appellant, operated through the Law Firm of Kitz Matheson of which he was a partner, requisitioned a Bank Draft payable to his former spouse for a cost of $7,000 Canadian. The requisition was specifically for a “US Draft” and the $7,000 converted to $5,334.15 U.S. A copy of the Requisition is attached hereto as Appendix “C”.
(b) The Appellant issued a cheque dated January 4, 1985 to Notre Dame Academy at the request of his former spouse in relation to school tuition for one of his children. The cheque was specifically written in U.S. funds. A copy of the cheque is attached hereto as Appendix “D”.
8. On October 17, 1991, at the request of his former spouse the Appellant sent a letter to his former spouse and her banker, Mechanics Bank, confirming that his former spouse received “income in the form of $5,000U.S. per month as alimony payments”. A true copy of this letter is attached hereto as Appendix “E”. It is agreed that the second sentence of the first paragraph of the letter is inaccurate and that the foregoing agreed facts represent the true state of affairs.
9. The agreement was executed in Nova Scotia and at that time both the Appellant and his former spouse lived in Nova Scotia.^
Counsel for the Appellant advanced several arguments in support of his position:
(a) First, as of June 30, 1986, the Appellant and his former spouse agreed to read the reference to $60,000 in the agreement to mean US $60,000. Therefore, the Appellant was legally obligated to pay such amount and should be entitled to a deduction of that amount in the computation of his income for tax purposes. Although the agreement does not expressly require that the $60,000 be paid in US funds, Counsel for the Appellant submits that neither does it require that amount to be paid in Canadian funds. Thus, since the contracting parties interpret the agreement to mean US $60,000, that is the basis upon which the Appellant’s deduction should have been allowed.
(b) Counsel further contends that if the words of the agreement with respect to the amount are not clear, then evidence of the parties’ conduct is admissible to clarify their intention. Counsel submits that since the reference to the amount of $60,000 in the agreement is ambiguous, the phrase is open to two reasonable alternative interpretations: $60,000 Canadian or US $60,000. The acts of the recipient spouse in altering the Appellant’s cheques by adding the letters “US” to the amount payable and of the Appellant in allowing the altered cheques to clear his bank were deliberate and intentional, as was the Appellant’s conduct in providing post-dated cheques for 1997 in US funds. These acts confirm the parties’ intentions as of June 30, 1986 and are consistent with their interpretation of the agreement as reading US $60,000.
(c) Anticipating that the Respondent might take the position that the agreement was amended on or about June 30, 1986, Counsel for the Appellant also submitted that given the wording used therein, no amendment was necessary nor has any amendment been made whether in writing or otherwise. This position is based on the proposition that the Appellant and his former spouse “have always agreed upon what the agreement says and means, therefore, any amendment would be unnecessary and redundant”.
In the alternative to the foregoing, Counsel submits that should the Court determine that a written amendment has been made or should have been made to the agreement, such amendment occurred:
(a) on or about June 30, 1986 when the Appellant’s former spouse altered the June 30, 1986 post-dated cheque and the Appellant accepted the proposed amendment which was made by his former spouse in writing by permitting the cheque to clear his bank account; or
(b) on or about January 1, 1987, when the Appellant provided 12 postdated cheques for 1987 to his former spouse specifying payment in US funds and the Appellant thereby accepted in writing the amendment proposed by his former spouse in writing on June 30, 1986; or
(c) on October 17, 1991 when the Appellant, by letter (Appendix E to the Agreed Statement of Facts) confirmed to his former spouse and her banker that $60,000 was payable in US funds.
The Respondent agrees that as of June 30, 1986, a change in the agreement between the parties occurred and that the Appellant’s subsequent payments to his former spouse were made in US funds. While the parties are entitled to change an agreement vis à vis each other, for the Appellant to rely on any change for purposes of the deduction permitted pursuant to subsection 60(b) of the Income Tax Act (the Act), such change must be made by written agreement. Since no subsequent written agreement exists the Respondent’s position is that the additional amount paid by the Appellant pursuant to this arrangement may not be deducted under subsection 60(b) of the Act.
Conclusion
The Appellant’s primary position is based on an assumption that the Original agreement was ambiguous in that it makes reference only to the amount of $60,000 and thus, it was open to the parties at a subsequent point of time to “interpret” or “read” it to mean US $60,000 without amendment. I reject that position out-of-hand. It is trite law that a valid contract cannot exist absent a consensus ad idem. Thus, the parties must be in agreement as to the same thing; there must be a meeting of the minds. As was observed by Professor Fridman:
Constantly reiterated in the judgments is the idea that the test of agreement for legal purposes is whether parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract.
The agreement in issue was entered into on December 9, 1982 at which time both parties were resident in Canada. Inter alia, by virtue of this agreement the Appellant agreed to pay as support and maintenance the sum of $60,000 per annum. It is conceded that both parties understood and accepted that the amount stipulated was to be paid in Canadian funds. Nothing in the agreement suggests that the parties contemplated any change in the spouse’s residency status at the time the agreement was executed, nor is there any evidence that they even remotely considered that possibility. In my view, on December 9, 1982, the parties had a clear and unequivocal understanding of their intention with respect to the effect of the agreement reached upon their relative rights and duties, not the least of which was the payment of maintenance, its amount, the manner in which it was to be paid, i.e. in Canadian funds, and that any amounts so paid were to be increased “on an annual basis ... by the amount annually equal to the percentage increase on the Consumer Price Index as published by Statistics Canada taking the national rate for the preceding year”. A consensus ad idem, is integral to the formation of a contract. I am not aware of any authority to support the proposition that a consensus ad idem, clearly expressed in an agreement between the parties and confirmed by subsequent conduct can at some point during the life of the agreement be “read and interpreted” in a substantially altered form to suit the particular requirements of the parties at that time. The effect of allowing the “meeting of the minds” to “float” renders the doctrine of consensus ad idem devoid of meaning.
Having concluded that there is no ambiguity in the agreement, it is unnecessary to have recourse to the parties’ conduct in 1986 and 1987 to clarify their “intentions”.
For essentially the same reasons, I reject the submission made on behalf of the Appellant that given the wording used in the agreement, no amendment was necessary to give effect to a change in the method of payment.
I turn next to the question whether on the facts of this case it can be found that the payments made by the Appellant on June 30, 1986 and thereafter until the end of 1987 were made pursuant to a “written agreement” and thus were deductible as alimony in computing the Appellant’s income in those taxation years.
It is not disputed that for the purposes of subsection 60(b) of the Act an agreement must be in writing. In Hodson v. Minister of National Revenue, Heald J. stated:
...I conclude that the words employed by Parliament in paragraph 60(b) must be interpreted "... in their ordinary grammatical sense”. I am unable to ascertain anything in the context or purpose of the statute or the circumstances of use which would justify an interpretation different from that resulting from a literal interpretation. The language used is clear and unequivocal. In order for the alimony payments to be deductible, there must be either a Court order or written agreement which requires such payment.
Parliament has spoken in clear and unmistakable terms. Had Parliament wished to extend the benefit conferred by paragraph 60(b) on separated spouses who, as in this case, do not have either a Court order or a written agreement, it would have said so. The rationale for not including separated spouses involved in payments made and received pursuant to a verbal understanding is readily apparent. Such a loose and indefinite structure might well open the door to colourable and fraudulent arrangements and schemes for tax avoidance. I hasten to add that there is no suggestion in the case at bar of any such fraudulent or colourable arrangement. The Minister agrees that, in the case at bar, the appellant has made the alimony payments to his spouse in good faith. Nevertheless, such a possible scenario in other cases commends itself to me as the rationale for the carefully worded restrictions set out in the paragraph. If the words used by Parliament create hardships, as suggested by the appellant, it is Parliament, and not the Court, that has the power to redress those hardships.
In Hodson, the wife refused to sign the written agreement on religious grounds. Nonetheless, the taxpayer made the support payments to his separated wife. Although factually distinguishable the interpretation given to subsection 60(b) by Heald J. is applicable to the present circumstances. By that I mean that to be valid for the purposes of that subsection, an amendment to a written agreement must itself be in writing. As Professor Fridman states:
A contract which varies an earlier agreement will be valid to the extent to which it is itself an enforceable agreement. Thus, there must be consideration (unless the variation is contained in a document under seal). If the contract is one which is governed by the Statute of Frauds, the Sale of Goods Act, or any other statute which requires a contract to be in writing or similarly evidenced in writing, the subsequent variation must itself be so effected, else it will be as unenforceable as the original contract would have been had it not been in writing or evidenced in writing.
(Emphasis added)
This principle was applied in Andrychuk v. Minister of National Revenue.^ In this instance, the taxpayer wished to deduct an amount that was over and above the amount of child support set out in the divorce Decree. The taxpayer’s former spouse had requested by letter an increased amount of child support. The taxpayer did not formally acknowledge receipt of the letter or agree to its terms. He merely paid the amount requested. In finding against the taxpayer, Couture, C.J.T.C., observed that it has consistently been held:
...that informal writings such as correspondence and memoranda between a husband and wife, or between their respective solicitors, will not be acceptable as evidence of the right to deduct alimony or maintenance payments from the payer’s taxable income. The wording of section 11 ( 1 )(1) [predecessor to subsection 60(b)] is reasonably clear and means just what it implies. It contains no reference whatever to correspondence and other informal writings... The relevant provisions of the Income Tax Act create no ambiguity or uncertainty that I have been able to detect. ...
Subsection 60(b) of the Act contemplates only two circumstances in which an agreement for the payment of maintenance is sufficient to qualify it as a deduction from other income. The first is a “decree, order or judgment of a competent tribunal” and the second is the existence of a written agreement. In my view not even the combined effect of the acceptance by the Appellant of his former spouse’s unilateral alteration of the cheques in 1986 and the forwarding of cheques by the Appellant to his former spouse and her endorsement thereof in 1987, is sufficient to constitute a written agreement for the purposes of subsection 60(b) of the Act. At best, the arrangement(s) between the Appellant and his former spouse in this case fall into the category of “less formal arrangements or other indefinite structures” which Parliament had no intention to permit for the purposes of subsection 60(b) of the Act.
Pursuant to the agreement between the parties, the appeals are allowed and the matter is referred back to the Minister for reconsideration and reassessment on the basis that the Appellant is entitled to deduct carrying charges in the amounts of $11,793 and $7,101 for the 1986 and 1987 taxation years, respectively. The Appellant is not entitled to any further relief. Costs to the Respondent to be taxed.
Appeal dismissed.
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