Robert Fleury v. Minister of National Revenue, [1979] CTC 2878, 79 DTC 472

Guy Tremblay [TRANSLATION]:—This case was heard in Quebec City, Quebec on April 20, 1979.

1. Point at Issue

The question is whether the appellant was correct in claiming the deduction of alimony payments made to his wife for 1975, when there was no written agreement or judgment to this effect.

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 a particular section of the Income Tax Act, but from a number of judicial decisions, including the judgment delivered by the Supreme Court of Canada in R W S Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

3. Facts

The facts as established by the evidence are not in dispute.

3.01 The appellant and his wife were separated de facto in November 1971.

3.02 A verbal agreement was made between the parties that the appellant would pay his wife $105 a week. The appellant stated that he was not aware that the Income Tax Act required a written agreement.

3.03 The appellant has performed this undertaking since that time, including 1975. He made the payments by cheque or his wife withdrew the amounts from a joint account. A series of 52 receipts for $105 each, signed by the wife, were filed as Exhibit A-3 for the year 1975.

3.04 Divorce porceedings were instituted and a decree nisi was made on May 21, 1976 (Exhibit A-2). It was affirmed by a decree absolute on September 15, 1976 (Exhibit A-1). The decrees confirmed an agreement between the parties that, inter alia, the alimony would be $150 every fortnight.

4. Act—Arguments—Case Law

4.1 Act

The paragraph of the new Income Tax Act concerned in the case at bar is 60(b), and it reads as follows:

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

(b) Alimony payments.—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 to whom he was required to make the payment at the time the payment was made and throughout the remainder of the year.

Counsel for the appellant also cited Art 186 of the Civil Code of the province of Quebec, which reads as follows:

Separation from bed and board can only be demanded for specific causes; it cannot be based on the mutual consent of the parties.

4.2 Arguments and Case Law

4.2.1 Arguments of the appellant

(a) Counsel for the appellant contended that a written agreement cannot be required by the Income Tax Act because it contravenes Art 186 of the Civil Code, cited above, providing inter alia that separation from bed and board cannot be based on mutual consent.

Learned counsel contended that in imposing this condition of a written agreement in paragraph 60(b), the federal legislator forgot Quebec.

Comments

Did the Government of Quebec, in imposing exactly the same condition in a section of the Quebec Income Tax Act (which is the counterpart of paragraph 60(b) of the federal Income Tax Act) also forget Quebec?

The Board strongly doubts it. Rather, it considers that a written agreement concerning the payment of alimony to a spouse for the purpose of authorizing a deduction under the Income Tax Act can in no way have the effect of a decree of separation from bed and board in a civil matter, or replace the Civil Code. In most decrees of separation from bed and board or of divorce, there is usually a written agreement that the judge decides the question of the alimony. However, this matter of alimony is not the decision which grants the separation from bed and board or the divorce, merely a consequence of the latter. The Income Tax Act starts with the facts (the separation of married persons, regardless of their legal situation) and lays down the conditions under which the deduction of alimony paid will be allowed. Each statute has its own purpose. One does not impede the jurisdiction of another: thus, for example, although the Criminal Code penalizes prostitution, it does not prevent the Income Tax Act taxing income derived from prostitution.

(b) The intent of paragraph 60(b)

In the submission of counsel for the appellant, the legislator’s intent in writing this section with all the conditions which it contains was to prevent fraud, that is, to prevent a taxpayer claiming as a deduction for alimony payments that were not made.

The evidence in the case at bar indicated that the appellant was in good faith, that he had made the payments required by the verbal agreement and that he was simply unaware that the agreement should have been in writing.

Comments

The Income Tax Act is a public law statute and must accordingly be given a literal and strict interpretation. In this regard, it is commonly said that there is no intent in a taxation statute. In a statute of this kind, when the legislator imposes an obligation in a section, the citizen (here, the taxpayer) is not bound by the obligation (by the tax) when the taxing section describing the obligation is not clear.

If, however, the section is one which reduces the obligation, such as a deduction or exemption, then the strict interpretation means that if the section is ambiguous there is no exemption. The rule of taxation applies, and the exemption, which is only an exception to that rule, disappears. The dictum “taxation is the rule and exemption the exception” is often cited by the courts. In the case at bar, however, paragraph 60(b) is not ambiguous: it is clear. The section requires a judgment or a written agreement.

In accordance with these general principles, the courts have ruled on paragraph 60(b) many times.

4.3 Case Law

The case law cited by the parties is as follows:

1. Eddie D Hardy v MNR, [1978] CTC 3120; 78 DTC 1802;

2. James Beatty v MNR, 13 Tax ABC 285; 55 DTC 444;

3. Keith Norman Fryer v MNR, 31 Tax ABC 143; 63 DTC 176;

4. No 345 v MNR, 15 Tax ABC 236; 56 DTC 327;

5. Edward Kostiner v MNR, 32 Tax ABC 124; 63 DTC 478;

6. Roland Vaillancourt v MNR, [1978] CTC 3157; 79 DTC 1829;

7. Daniel Kapel v MNR, [1979] CTC 2187; 79 DTC 199;

8. John D Milburn v MNR, [1979] CTC 2007; 79 DTC 24;

9. William Edward Horkins v Her Majesty the Queen, [1976] CTC 52; 76 DTC 6043.

In James Beatty, the Chairman of the Tax Review Board refused to allow amounts paid as alimony, specifically because the appellant had refused to sign the written agreement prepared by counsel.

In Keith Norman Fryer, it was held that the appellant’s handwritten letter did not constitute a written agreement signed by both parties.

In No 345 v MNR, it was held that an exchange of correspondence between counsel for the two spouses to determine the amount of the alimony did not constitute a written agreement. The Board noted that the signature of both spouses should appear on the document.

In Edward Kostiner, it was held that the correspondence between the spouses and between their counsel did not constitute a valid written agreement.

In Roland Vaillancourt, Mr Roland St-Onge dismissed the appeal of the taxpayer because there was no written agreement for all the payments made before the decree ordering payment of alimony was obtained.

In Daniel Kapel, Mr M J Bonner dismissed the claimant’s appeal because, although the clauses of the agreement had been written and signed by the husband, the wife had not signed.

The Board is definitely of the opinion that in the case at bar as in many other cases, it is reasonable on grounds of equity for the appellant to be able to deduct the amounts paid. However, the Income Tax Act is not an equity statute. As explained above, it is a public law statute, which must be interpreted strictly, that is, according to the letter of the law. The assessment must be upheld.

5. Conclusion

The appeal is dismissed in accordance with the foregoing reasons for judgment.

Appeal dismissed.