Minister of National Revenue v. John Douglas Rice and Barbara Jean Rice, the Taxpayers, and John Douglas Riceand Minister of National Revenue, [1976] CTC 2001

A W Prociuk (orally: November 26, 1975):—The appellant, the late John Douglas Rice, appealed from the respondent’s reassessment of his income for the taxation year 1971 wherein a deduction of $1,400 which the appellant sought to deduct from his income (and which sum, according to the appellant, represents the value of a two-bedroom apartment suite at $200 per month which he provided for his wife Barbara Jean Rice and child), was disallowed on the ground that it was not a deduction within the purview of paragraph 11(1)(l) of the Income Tax Act as it was then in force.

After the respondent filed his Reply to the Notice of Appeal, he applied to the Board, pursuant to the provisions of subsection 174(1) of the present Income Tax Act, for a determination of a question of mixed law and fact with regard to the said sum of $1,400. The said question is set out in paragraph 2 of the application, which reads as follows:

2. The question in respect of which the Minister of National Revenue requests a determination is whether the whole or any part, and If part, then what part, of the sum of $1,400.00 was paid by John Douglas Rice and received by Barbara Jean Rice in 1971, pursuant to the written Separation Agreement, as alimony or other allowance payable on a periodic basis for the maintenance of Barbara Jean Rice, children of the marriage, or both Barbara Jean Rice and children of the marriage, from whom John Douglas Rice was living apart from and separated pursuant to the written Separation Agreement and to whom he was required to make the payments at the time the payments were made and throughout the remainder of the 1971 taxation year, and, specifically, whether the whole or any part of the sum of $1,400.00 is:

(a) by virtue of Section 11(1)(l) of the Income Tax Act deductible by John

Douglas Rice in computing his income for the 1971 taxation year, and

(b) by virtue of Section 6(1)(d) of the Income Tax Act to be included in computing the income of Barbara Jean Rice in the 1971 taxation year.

The Order of the Board dated March 17, 1975, is hereby amended to read that the wife Barbara Jean Rice is joined to the appeal, being file No. 74-778 of the Board, instituted by John Douglas Rice aforesaid.

The Board was advised at the commencement of the hearing of this appeal that the late John Douglas Rice died on or about May 31, 1975. His estate was represented by his solicitor who called one witness, Mr I B Cowan, an accountant who had worked with the deceased appellant for many years and who was secretary-treasurer of Jack Rice Caterers Ltd, a company indirectly owned and controlled by the deceased appellant in his lifetime.

Mrs Barbara Jean Rice also testified in support of her position that no part of the said $1,400 should be added to her income in the said taxation year.

Counsel for the appellant stated that the sum was actually $1,000, as the wife only occupied the said suite for five months in 1971, that is, from August to December inclusive. Thus the question is amended to read $1,000 instead of $1,400.

The facts are essentially not in dispute. Around April of 1971, the couple ceased cohabiting and, on June 2, 1971, entered into a written separation agreement, a copy of which was filed as Exhibit A-1. The agreement is a document carefully drafted by the solicitors for the appellant, I take it. The pertinent paragraphs thereof, which are material to the issues here, are paragraphs 14 and 15, which read as follows:

14. The husband shall pay to the wife for her support, maintenance and benefit the sum of $3,600 yearly, payable in advance in bi-monthly instalments of $150.00 each, commencing on the 1st day of June, 1971 and continuing bi-monthly and every month during the term of the wife’s natural life, or until she remarries and on condition that the wife shall continue to live a chaste life. If the husband should predecease the wife then the said maintenance payments shall be a charge on the husband’s estate.

15. The husband shall provide a two-bedroom upper apartment for the wife at 24 John Street North, in Aylmer, Ontario which shall include livingroom, diningroom, kitchen, two bedrooms, bathroom and a separate entrance and shall provide for all utilities in connection with said apartment. In the event that the wife should not wish to live in the aforesaid apartment and shall vacate same, then the husband shall pay to the wife an additional $200 monthly for her support, maintenance and benefit on the same terms as set out in paragraph 14.

The matrimonial home of the couple was sold in accordance with the terms stipulated elsewhere in the said separation agreement and Mrs Rice moved into and occupied the suite referred to in paragraph 15. The appellant sought to claim this further deduction of $200 per month by reason of the fact that the wife had the benefit of the suite.

The issue appears to me to be whether paragraph 15 comes within the purview of paragraph 11(1)(l). Alimony in the sum of $300 per month, payable bi-monthly in the sum of $150 is clearly covered in paragraph 14 of the separation agreement and does come within the meaning of paragraph 11(1)(l); and there is no dispute on this point. To be allowable as a deduction, the provision of a suite must come within the ambit of the term “or other allowance”.

In the case of R v Morton Pascoe, [1975] CTC 656; 75 DTC 5427, a decision of the Federal Court of Appeal dated October 31, 1975 . . . Justice Pratte, in defining the word “allowance” at page 5428 [658], states as follows:

An allowance is, in our view, a limited predetermined sum of money paid to enable the recipient to provide for certain kinds of expense; its amount is determined in advance and, once paid, it is at the complete disposition of the recipient who is not required to account for it. A payment in satisfaction of an obligation to indemnify or reimburse someone or to defray his or her actual expenses is not an allowance; it is not a sum allowed to the recipient to be applied in his or her discretion to certain kinds of expense.

The learned judge then goes on to deal with the actual point in issue there, namely, medical and educational expenses with which we are not concerned here.

In reading paragraph 15 of the written separation agreement, one is bound to give the words and phrases their ordinary and everyday meaning. The last sentence of paragraph 15, and I quote it once again, reads as follows: “In the event that the wife shall not wish to live in the aforesaid apartment and shall vacate same, then the husband shall pay to the wife an additional $200 monthly for her support, maintenance and benefit on the same terms as set out in paragraph 14”. Nowhere in the said paragraph 15, nor anywhere else in this agreement so carefully drafted by the appellant’s solicitor, is there anything to indicate that the suite supplied to the wife shall bear the value of $200 per month during her residence therein or that she shall be deemed to have received that amount each month as long as she continues to occupy it.

Mr Cowan’s evidence was to the effect that he and the deceased, in determining the amount that would be payable to the wife in the event that she vacated the suite as is stated in the agreement, arrived at a figure of $200 a month on the basis of the cost of comparable accommodation at that time in the Town of Aylmer, Ontario. However, he also said that, as soon as the wife moved into the suite and occupied it, a charge of $200 per month against the income of the deceased was made by his company, Jack Rice Caterers Ltd, the owner of the building in which this suite was located. This charge, of course, is of no concern of the Board at the present time.

If the intention was different from what is clearly expressed in the said paragraph 15, then I can only infer that that intention was abandoned when the agreement was finally executed in its present form; and there is no extrinsic evidence to the contrary. In my humble opinion, the Board is not entitled to impute to a clearly written document a meaning that is not there.

The question is accordingly determined on the basis that no portion of the said $1,000 is deductible by the appellant from his income in the said taxation year, and it follows that no portion of the said $1,000 is to be included in computing the income of the wife Barbara Jean Rice for the said taxation year.

In view of my determination of the question the appeal of the late John Douglas Rice is therefore dismissed.

Appeal dismissed.