Jaskot v. MNR, 92 DTC 1102, [1992] 1 CTC 2145 (TCC)

Brulé, T.C.C.J.:—This appeal stems from a reassessment of the appellant's 1987 taxation year in which he was denied a deduction of $4,232.25 being a portion of funds he paid to his former wife.

Facts

No dispute arose as to the facts in this case. By Court order the appellant was required to pay certain amounts to his former spouse. This lasted from November 1984 to 1987 when increased payments were made. These were as a result of the former spouse asking for an increase to meet her requirements. Lawyers for both parties seemed to have an agreement and the additional amount paid of $4,232.25 was not allowed by Revenue Canada as it was maintained that the extra payments were not made pursuant to the provisions of paragraph 60(b) of the Income Tax Act, R.S.C. 1952, c. 148 (am. 5.C. 1970-71-72, c. 63) (the "Act").

Issue

The sole issue is whether or not the payments made by the appellant qualified for deductions by him in accordance with paragraph 60(b) of the Act. That section and paragraph reads as follows:

60. There may be deducted in computing a taxpayer's income for a taxation year such of the following amounts as are applicable:

(b) 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.

The only point in issue is whether or not the payments were made "pursuant to a written agreement”.

Appellant's Position

Counsel stressed that the agreement between the appellants counsel and his former wife's counsel constituted the requirement of a written agreement as set out in paragraph 60(b) of the Act. As authority for this he cited three Ontario cases:

Geropoulos v. Geropoulos (1982), 26 R.F.L (2d) 225;

Campbell v. Campbell (1985), 47 R.F.L (2d) 392;

Tanaszczuk v. Tanaszczuk (1988), 15 R.F.L (3d) 441.

In the Ontario courts it is accepted that after litigation commences in family matters the compromise and resolution of litigious matters ought to be encouraged. Such can be accomplished by the solicitors or the parties involved.

For income tax purposes the Court should follow the Ontario acceptance of solicitors' agreements especially as the Act speaks of a "written agreement" but nowhere in the Act is such defined.

Reference was made to the Federal Court case of John Michael Burgess v. Canada, [1991] 2 C.T.C. 163, 91 D.T.C. 5076 wherein Reed, J. in obiter dicta stated that an exchange of correspondence between the taxpayer's and his wife's solicitors constituted a "written agreement" within the meaning of the initial words of paragraph 60(b) of the Act.

It was agreed that for these reasons the appeal herein should be allowed.

Minister's Position

The respondent presented the Court with a book of authorities containing some 19 cases. Reference was made in particular to two of these:

William Edward Horkins v. The Queen, [1976] C.T.C. 52, 76 D.T.C. 6043;

Bernard A. Hodson v. The Queen, [1987] 1 C.T.C. 219, 87 D.T.C. 5113 (F.C.T.D.); aff'd [1988] 1 C.T.C. 2, 88 D.T.C. 6001 (F.C.A).

In the Horkins case, supra, the facts revealed even more of an agreement between the parties than we have here. Collier, J. summarized the case at page 56 (D.T.C. 6046):

Counsel urged that the following facts when put all together amounted to a written separation agreement pursuant to which the plaintiff was separated and living apart, and the payments in question were made pursuant to a written agreement:

(a) husband and wife had orally agreed to live separate and apart.

(b) written draft separation agreements passed back and forth between their representatives, as well as correspondence on the same matters directly between the parties. Those documents and letters, it is said, confirmed in writing the separation and the living apart.

(c) the acceptance of the alimony cheques by the wife for the months in question, and the general reference to the payments in the letter earlier set out (Exhibit 5 to the Agreed Statement of Facts).

In my opinion, no matter how hard one strains to find in favour of the plaintiff, those facts cannot be held to be an agreement in writing or a written separation agreement (or both). They do not, as I see it, meet the requirements of H(1)(l) [now 60(b)].

Looking at the Hodson case, supra, a view of the intention of the paragraph is expressed. In the Trial Division of the Federal Court, Strayer, J. said of the situation which is similar to the present case in a passage found at pages 220-21 (D.T.C. 5114):

The intention of Parliament as expressed in paragraph 60(b) is quite clear: either there must be a court order requiring such payments or else there must be a written agreement requiring them. If Parliament had intended to permit such deductions to be made on the basis of oral agreements or implied agreements or in respect of purely voluntary payments it would have said so. Having used the words "written agreement" it has clearly excluded other less formal arrangements.

[Emphasis added.]

In the appeal division dealing with the Hodson case, supra, Heald, J. for the Court commented at page 5 (D.T.C. 6003):

Parliament has spoken in clear and unmistakable terms. Had Parliament wished to extend the benefit conferred by paragraph 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 ease 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.

The Burgess case, supra, referred to by counsel for the appellant allowed that an exchange of letters between counsel could be regarded as a written agreement. This comment was made not on the basis of determining the issue involved but by way of obiter dicta.

In the present case there was no exchange of correspondence. At best Mrs. Jaskot's solicitor wrote some letters indicating an agreement but Mr. Jaskot's communication was all oral. The result is that this does not satisfy the requirements of paragraph 60(b) of the Act.

Analysis

While the courts in Ontario may consider agreements between solicitors as being valid such, other than the comment in the Burgess case, supra, do not bind the courts in the interpretation of paragraph 60(b) of the Act.

It is interesting to note the differences wherein the Ontario courts accepted the actions of solicitors as being different from the present case.

In the Geropoulos case, supra, an exchange of correspondence between solicitors was held to be sufficient to comply with the Ontario Family Law Reform Act. Here we are dealing with a different statute which has been interpreted regarding this problem differently and also there was no exchange of correspondence in the present case. The Campbell case, supra, is distinguishable in that both parties signed a letter under the word "accepted", not so here.

The United Family Court Judge in the Tanaszczuk case, supra, rejected the interchanzge of letters between counsel as an agreement to settle disputed matters as no litigation had commenced. He stated that if litigation had started less formal agreements than those envisaged by section 55 of the Family Law Act would be acceptable. No mention was made of what constituted less formal agreements but I cannot believe that agreement on one side by oral confirmation would suffice.

Black's Law Dictionary defines a "written instrument" as "something reduced to writing as a means of evidence, and as the means of giving formal expression to some act or contract".

In the present case the agreement was partly written and partly oral. This is at best a unilateral situation and not acceptable for the purposes of paragraph 60(b) of the Act.

As to the Burgess case, supra, this too may be distinguished in that there existed letters between the two solicitors. This is not the case here. Also I would like to make reference to the comments of Christie, A.C.J.T.C. in the case of K.J. Beamish Construction Co. Ltd. v. M.N.R., [1990] 2 C.T.C. 2199, 90 D.T.C. 1584 at page 2216 (D.T.C. 1596):

I have noted on other occasions that I regard myself bound by decisions of the Federal Court-Trial Division. But this is necessarily subject to the caveat that it does not apply when I am satisfied that a judgment of the Federal Court-Trial Division is inconsistent with higher judicial authority to which I must also pay heed.

Counsel for the appellant referred to subsection 60.1(1) of the Act in his argument. This subsection refers to a written agreement as described in paragraph 60(b) of the Act. Inasmuch as I am satisfied that there was no "written agreement" as required by that paragraph this subsection has no application.

The appeal is dismissed.

Appeal dismissed.