Minister of National Revenue, Respondent., [1976] CTC 2048

A W Prociuk (orally: November 27, 1975):—The appellant, Thomas J Collins, appeals from the respondent’s reassessments of his income in respect of the taxation years 1970 and 1971 wherein the sums of $1,150 and $6,300 respectively paid by the appellant to his wife, Jeannette Marie Collins, in the said taxation years, were disallowed as deductions on the ground that same were not paid pursuant to a written agreement within the meaning of paragraph 11(1)(l) of the Income Tax Act as it was then in force.

The appellant’s position is that the said payments were made pursuant to a written separation agreement dated October 20, 1970, within the meaning of the said section.

The respondent served and filed his Reply to the Notice of Appeal on March 25, 1975, and on the same date, by an application under subsection 174(1) of the present Income Tax Act, applied to the Tax Review Board for a determination of a question of mixed law and fact as well as for an Order joining the taxpayer Jeannette Marie Collins, referred to above, as a party to the appeal instituted by Thomas J Collins. The question to be determined is stated in the application as follows, at page 4, paragraph 2, subparagraphs (a) and (b):

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 sums of $1,150.00 and $6,300.00 was paid by Thomas J Collins and received by Jeannette Marie Collins in the years 1970 and 1971 respectively, pursuant to an agreement, as alimony or other allowance payable on a periodic basis for the maintenance of Jeanette Marie Collins, children of the marriage, or both Jeannette Marie Collins and children of the marriage, if Thomas J Collins was living apart from and separated pursuant to an agreement and to whom he was required to make the payments at the time the payments were made and throughout the remainder. of the 1970 and 1971 taxation years, and, therefore, whether:

(a) the whole or any part of the said sums of $1,150.00 and $6,300.00 is deductible to Thomas J Collins by virtue of Section 11 (1)(l) of the Act as an amount paid by Thomas J Collins in the 1970 and 1971 taxation years, respectively, pursuant to a written agreement as alimony or other allowance payable on a periodic basis for the maintenance of Jeannette Marie Collins, children of the marriage, or both Jeannette Marie Collins and children of the marriage, if Thomas J Collins was living apart from, and separated pursuant to a written separation agreement, Jeannette Marie Collins, and to whom he was required to make the payments at the time the payments were made and throughout the remainder of each respective taxation year;

(b) the whole or any part of the said sum of $1,150.00 and $6,300.00 is to be included in the income of Jeannette Marie Collins by virtue of Section 6(1)(d) of the Act as an amount received by Jeannette Marie Collins in the 1970 and 1971 taxation years, respectively, pursuant to a written agreement as alimony or other allowance payable on a periodic basis for the maintenance of Jeannette Marie Collins, children of the marriage, or both Jeannette Marie Collins and children of the marriage, if Jeannette Marie Collins was living apart from, and was separated pursuant to a written separation agreement from, Thomas J Collins required to make the payments at the time the payments were received and throughout the remainder of each respective taxation year.

The Order of the Board dated May 28, 1975, is hereby amended to read that Jeannette Marie Collins is added as a party to the appeal aforesaid and she shall be bound by the determination of the said question, subject, of course, to the provisions respecting appeals as same are set out in subsection 174(4) of the Income Tax Act, SC 1970-71-72, c 63.

The parties were married in 1960 and there are three children of the marriage, namely, Mark, born in 1961; Kristen, born in 1963; and Brendan, born in 1966. The husband was, at the material time, a professor of English employed by the University of Western Ontario at London, Ontario, and the wife was a high school teacher and taught part time in the years in question. At the present time the husband is Chairman of the English Department of the said University and the wife is a ballet dancing teacher with the National Ballet School in Toronto, Ontario. Both testified at the hearing. One could not help but notice that each was nervous and tense; but I did not detect any ill feeling, acrimony or bitterness between them or towards each other. Each had certain difficulty in recalling certain dates and incidents on cross-examination but, in my view, this did not detract from the credibility of either one.

For about a full year prior to October 20, 1970, there were difficulties in their domestic life. Both spouses and their children lived in the matrimonial home at 483 Regent Street in London, Ontario. Early in 1970, Mrs Collins sought legal advice from her lawyer, Mr W Bell. Dr Collins and Mrs Collins discussed separation but could not agree on the terms. When Mrs Collins told her husband that she had consulted Mr Bell, he sought to consult him as well. But apparently Mr Bell informed him he would have to consult some other solicitor as he did not feel free to act for both parties. Dr Collins then consulted Mr Siskiad. Apparently some negotiations took place between the parties and their respective solicitors in the spring of 1970, but no agreement as to terms with regard to financial arrangements or on the question of the custody of the children and visitation rights could be reached. This undoubtedly caused an increase in the tension that already existed between them. Dr Collins was called away from London in late spring of 1970 to attend to certain matters in respect of his professional work, and when he returned later on, Mrs Collins then left for Toronto. The terms of the separation agreement were not settled. Paraphrasing Mrs Collins’ testimony, she stated that both were “so uptight and worked up” that they could hardly speak to one another. In August of 1970 she had a nervous breakdown and was hospitalized in Victoria Hospital and, on September 20th, was transferred to the London Psychiatric Hospital, where she stayed until October 21, 1970, when she was discharged and returned to her home at 483 Regent Street.

The evidence of Miss Barbara Maudsley, a social worker at the London Psychiatric Hospital, is that she and the doctors there soon came to the conclusion that the major cause of the state of depression which led to Mrs Collins’ breakdown was the fact that she and her husband were unable to come to an agreement as to the terms of their separation agreement. It was the feeling of the hospital staff that if they could be of some assistance to the couple in this regard, it would undoubtedly be a substantial therapeutic factor in Mrs Collins’ recovery. Miss Maudsley held sessions with both parties, that is, with Dr Collins and with Mrs Collins, but the evidence is not clear whether at any time she held discussions at which both of them were present at the same time. She stated that the discussions were mainly confined to the basic items on which Dr and Mrs Collins were at odds.

On weekends, after September 21, 1970, Mrs Collins went home to be with her children, who were being looked after by the husband during her absence. When she was at the house, Dr Collins states, he left and stayed at his mother’s place.

On October 20, 1970, Miss Maudsley drafted a document entitled: “A list of decisions arrived at by Mr and Mrs T Collins’, which document both parties signed in her presence and whereon she witnessed their signatures. The document was filed as Exhibit A-1 and reads as follows:

The following is a list of decisions arrived at by Mr and Mrs T Collins:—

Mr Collins will pay $525.00 per month to Mrs Collins for support of herself and the three children.

Mr Collins will see the children once every two weeks (exact times arranged by telephone), and will have them for two weeks’ vacation In the summer.

Medical insurance for the family—carried by Mr Collins.

House (483 Regent Street)—By mutual agreement, Mr Collins’ financial interest In the house is to be bought out by Mr D Edissi, Mrs Collins’ father, for $3,000.00 less approximately $360.00 back interest and the deed of the house will be transferred to Mrs Collins’ name. The above-mentioned $3,000.00 is the debt owed to Mr Collins’ mother. Mr Collins is to leave the house, and except for visiting privileges when he picks up the children, does not have right of access to the house.

There is to be a review of the general situation and problems after three months, and after nine months in the presence of designated social agencies (London Psychiatric Hospital and a doctor).

This basic scheme is to hold for three years when, by mutual consent of both parties, it comes up for reassessment.

Miss Maudsley stated in evidence that she did not consider this to be a legal document because it was not drawn up by a lawver. Mrs Collins stated that these were the basic items which had given rise to so much tension and that it was her understanding that they would be incorporated in a formal separation agreement to be drawn up by lawyers.

Under cross-examination, Dr Collins stated that he took a copy of Exhibit A-1 to his lawyer. From here on the evidence is not clear as to whether the lawyers for each of the spouses were instructed to pursue the matter of drawing up a formal document incorporating the items referred to in Exhibit A-1, but there was some evidence adduced that Mr Siskind at least wrote letters to Mr Bell in that regard.

Dr Collins sought further advice, and states that, on the basis of the information he obtained, he was satisfied that, for income tax purposes at least, Exhibit A-1 was sufficient.

The evidence satisfies me that Dr Collins lived separate and apart from his wife and children elsewhere than in the matrimonial home at 483 Regent Street, or whichever premises Mrs Collins and the children later occupied as their home following the sale of the said matrimonial home at 483 Regent Street in London.

Mrs Collins, on being discharged from the hospital, went back to the matrimonial home and commenced working again as a part time teacher.

In December of 1970, Mrs Collins was hospitalized again for a brief period and during that time, her husband returned to the house, at her request or with her acquiescence, to look after the children. However, he left immediately after she again returned home from hospital.

Dr Collins made payments to his wife in 1970 as follows: $100 on October 20, 1970, being for the balance of the month of October: $525 in November; and $525 in December of that year. The evidence satisfies me that in 1971 he paid the sum of $525 for each of the 12 months, for a total of $6,300.

He states that he experienced some difficulty in respect of his visitation rights, and either spoke to his lawyer or to Mrs Collins directly about it, and apparently this matter was rectified at a later date.

The issue here is, simply, does Exhibit A-1 come within the purview of paragraphs 11(1)(l) and 6(1)(d) of the Income Tax Act, RSC 1952, c 148 as amended?

Counsel for the respondent, in support of the argument presented by counsel for Mrs Collins, stated that Exhibit A-1 is not the written separation agreement envisaged by paragraph 11(1)(1) of the Income Tax Act for the years in question, for three reasons: (1) Exhibit A-1 is not under seal and there is no consideration from Mrs Collins, and therefore it is not an enforceable contract. (2) It was merely an agreement to agree (and with this second point I can wholeheartedly agree that it was “an agreement to agree’’). (3) If the document was an agreement, it was not a written separation agreement as required by paragraph 11(1)(), which also requires the husband to live separate and apart from his spouse as stated in the said section, which I now quote:

11(1) Notwithstanding paragraphs (a), (b) and (h) of subsection (1) of section 12, the following amounts may be deducted in computing the income of a taxpayer for a taxation year:

(I) 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;

Having heard the evidence of both parties, I am satisfied that Exhibit A-1 is a written separation agreement on which the parties relied until August 7, 1972, when, Mrs Collins and the children having moved to Toronto, a revised separation agreement was entered into by Dr and Mrs Collins. This latter document was prepared by a firm of solicitors.

The question is therefore determined on the basis that the whole of the sums of $1,150 and $6,300 respectively is deductible by the husband, that is, the appellant Thomas J Collins herein, in the taxation years 1970 and 1971 pursuant to paragraph 11 (1)(l) of the Act and the said sums are to be added in their entirety to the income of the wife Jeannette Marie Collins for the respective taxation years.

in view of the determination of the said question, the appeal of the appellant Thomas J Collins is allowed and the matter is referred back to the respondent for reassessment accordingly.

Appeal allowed.