J v R Gagné v. Minister of National Revenue, [1976] CTC 2163, 76 DTC 1125

The Chairman:—This is the appeal of J V R Gagné against tax assessments for the 1969, 1970, 1971 and 1972 taxation years.

In Notices of Assessment dated December 21, 1973 the Minister of National Revenue disallowed the deduction of the amounts of $3,389.43, $3,305.45 and $1,811.05 claimed by the appellant for the years 1969, 1970 and 1972, respectively, as alimony paid to Mrs Marcelle Godin Gagné. In a Notice of Assessment dated April 26, 1973 the Minister refused to deduct the sum of $3,333.84 claimed as alimony paid to Mrs Marcelle Godin Gagné for 1971. The appellant filed Notices of Objection for each of the years in question, and the Minister upheld his assessments for the said years on July 16, 1974.

It was established in evidence that the appellant, after numerous quarrels with his spouse, decided to leave their home in Rimouski, Quebec. Following his departure, the appellant apparently lived in a number of cities throughout the country and never returned to live with his wife and children.

On May 8, 1967 the appellant wrote a letter to his wife indicating the date of his final departure from the family’s home. This letter, filed as Exhibit A-1, also contained a list of expenses for the upkeep of the family residence which the appellant undertook to continue to pay.

Apparently his wife did not countersign this letter, and there is nothing in the evidence to indicate that she ever answered her husband’s letter and agreed with it. However, in his 1969 tax return the appellant included a document signed by Mrs Gagné to the effect that she had in fact received the amounts claimed by the appellant in 1969.

Divorce proceedings were instituted early in 1970, and judgment was handed down on February 22, 1972 (Exhibit A-3). In his judgment, the Honourable Mr Justice Gabriel Roberge of the Quebec Superior Court gave Mrs Gagné custody of the four children and ordered the appellant to pay his wife monthly alimony of $180.

The issue in this case concerns not so much the quantum of the amounts claimed as their nature and application in connection with the provisions of paragraphs 11 (1)(l) and 11(1)(la) of the old Income Tax Act, which read as follows:

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;

(la) an amount paid by the taxpayer in the year, pursuant to an order of a competent tribunal, as an 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 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 respondent argued that, since these sections represent a departure from the general principles of income taxation, they should be strictly interpreted, and he correctly maintained that all the conditions contained in the sections cited above, of which there are five, must be met.

In my opinion, the amount of $180 per month paid by the appellant to his spouse from February 22, 1972, the date of the judgment of Mr Justice Roberge, to December 31, 1972 was a payment made by the taxpayer during the year 1972, pursuant to a judgment of a competent tribunal, as alimony, and was payable on a periodic basis for the maintenance of his spouse and children while he was living apart from them and was separated pursuant to a divorce.

There is no doubt that these payments meet all the conditions of paragraphs 11(1)(1) and 11(1)(la), and are deductible. Moreover, of the amounts claimed by the appellant in 1972, the sum of $1,800 was subsequently accepted by the Minister as being the amount paid as alimony.

However, although Mr Justice Roberge, in his reasons for judgment, referred to the payments made by the appellant to his spouse prior to February 22, 1972, the decree of divorce, custody of the children and the alimony payments of $180 per month did not have legal effect and were not enforceable until February 22, 1972 and, in my view, cannot be applied retroactively to an earlier period of time.

In his argument, counsel for the appellant maintained that the appellant had been living apart from his wife since May 13, 1967 and that the letter written by the appellant to his spouse dated May 8. 1967, in which he announced his imminent departure and indicated his willingness to continue making certain payments for household expenses, should be consdered a written agreement in accordance with the requirements of paragraph 11 (1)(l) in view of the fact that the appellant’s spouse endorsed and accepted the amounts paid by cheque (Exhibit A-2) and had signed a paper to the effect that in 1969 she had in fact received the amounts claimed by the appellant as alimony.

I am satisfied from the evidence that the appellant in fact lived apart from his spouse during the period in question in this appeal, but I am not at all convinced that this separation and the payments took place pursuant to a written agreement between the spouses.

The husband’s letter dated May 8 reflects a unilateral decision by the appellant to leave the family abode and to continue paying certain household expenses.

Although I am, of course, in agreement with Pothier’s definition, which, briefly, states that an agreement is created by the consent of two parties, I fail to find any proof of consent by the spouse in the evidence brought forward in this case. Counsel for the appellant, on the basis of Migneault's definition of an agreement, maintained: that the letter of May 8 was a pollicitation made by the appellant, that. the endorsement of the cheques by the wife constituted acceptance of the offer made by her husband, and that,- together, these constitute a valid written agreement within the terms of paragraph 11(1 )(l). It is possible that in certain circumstances acceptance of a cheque may be considered acceptance of an offer but, in my view, if true acceptance of an offer by the recipient is to exist, it is essential that the payment be made pursuant to an agreement in which some degree of freedom of action and choice for both parties exists.

The letter of May 8 contains only the appellant’s decision. There is no evidence to indicate that the letter was written after an agreement with his wife, or that the latter agreed to the conditions in the letter. lt appears clear to me that the wife was faced with a decision made by the appellant alone: one in which she had no more choice or control over the arrangements made by him for the payment of expenses to the family (expenses which the appellant was, moreover, already legally bound to pay) than she had over her husband’s departure from the family home. The letter gave the wife no freedom of action and no choice: whether she agreed or not was immaterial.

In my opinion, in the case at bar, there was no agreement by the wife either with regard to the separation between herself and the appellant or with regard to the payments referred to by the appellant in his letter of May 8, 1967. Under the circumstances, the acceptance by the wife of the payments which the appellant was already legally bound to make cannot be considered acceptance by her of a pollicitation made by the appellant, and I do not see it as a written agreement within the terms of paragraph 11(1)(1) or 11(1)(la).

In the absence of an admissible agreement, the interesting question raised by counsel for the respondent is not in issue, and I do not intend to comment on the point it raises here. However, I believe it would be useful if, in the future, it were determined whether Article 186 of the Civil Code, which does not allow separation from bed and board by mutual consent of the spouses, makes a Quebec taxpayer, who is separated in fact if not by a legal agreement within the terms of the Income Tax Act, unable to make the deductions which are provided for, and allowed to, all other Canadian taxpayers in paragraphs 11(1)(l) and 11(1)(la).

In considering the nature of the payments made by the appellant to his wife in 1969, 1970, 1971 and early 1972, the Board must take into account and apply the decisions of the Federal Court of Appeal on such matters. In Her Majesty the Queen v Morton Pascoe, [1975] CTC 656; 75 DTC 5427, a recent Federal Court of Appeal case cited by counsel for the respondent, Pratte, J, on page 658 [5428], defined “alimony or other allowance” 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.

In the judgment of the Federal Court of Appeal in Attorney General of Canada v James C Weaver and Freda J Weaver, [1975] CTC 646; 75 DTC 5462, Mr Justice Thurlow based his judgment on the definition of “alimony or other allowance” given by Pratte, J in Pascoe.

The evidence indicates that the majority of the expenses claimed by the appellant and listed in each of his 1969, 1970 and 1971 tax returns, and which included the mortgage on the house owned by the appellant, heating, electricity, insurance and miscellaneous expenses, do not constitute payment of alimony as defined by the Federal Court of Appeal.

I therefore conclude that the expenses claimed by the appellant for 1969, 1970 and 1971 were not paid as alimony in accordance with a written agreement as required by paragraphs 11(1)(l) and 11(1)(la). For 1972, only the amounts of $180 per month paid by the appellant on or after February 22, 1972 pursuant to a decision of the Superior Court of Quebec are deductible as alimony payments.

The appeal is therefore dismissed.

Appeal dismissed.