Citation: 2007TCC470
Date: 20070817
Docket: 2006-1469(IT)I
BETWEEN:
MICHAEL SYREK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
and
CHARLENE FERGUSON,
Third Party.
REASONS FOR JUDGMENT
Little J.
A. Facts
[1] The Appellant
separated from his common law spouse, Charlene Ferguson (“Ferguson”), in September 2001.
[2] The Appellant and Ferguson have two children (the
“Children”).
[3] On November 21,
2001 the Appellant and Ferguson entered into an interim Separation Agreement (the “Separation
Agreement”). (See Exhibit A-1, Tab 1)
[4] The Separation Agreement
provides, in part, as follows:
(a) Paragraph 6:
“Syrek shall pay to Ferguson for her support, the sum of $2,000.00 per month,
payable in bi-weekly installments of $923.00, commencing on the 6th day
of December, 2001, and continuing on a bi-weekly basis thereafter, to coincide
with Syrek’s pay periods.”
(b) Paragraph 7:
“Syrek and Ferguson acknowledge that the execution of this agreement
shall not be construed as any indication that Syrek is able or liable to pay
spousal support in the amount set out herein, or at all.”
(c) Paragraph 8:
“Syrek and Ferguson agree that this
agreement is entered into without prejudice to the rights of Syrek or Ferguson
to have the issue of spousal support determined in judicial proceedings, and
that this agreement regarding spousal support shall not be referred to by Syrek
or Ferguson…in any proceedings for spousal support instituted by either of
them…”
[5] The Appellant
maintains that since December 6, 2001, he has made all of the required spousal
support payments to Ferguson.
[6] The Appellant
maintains that the amount of spousal support payments made by him for each of
the applicable taxation years is as follows:
(a) 2001 $ 1,846.00;
(b) 2002 $23,998.00;
(c) 2003 $23,998.00; and
(d) 2004 $23,998.00.
(Note: Ferguson does not agree that the Appellant paid all of these payments.)
[7] When the Appellant
submitted his income tax returns for the taxation years 2001, 2002, 2003 and
2004, he deducted from his income the spousal support payments as outlined in
paragraph [6] above.
[8] The Minister of
National Revenue (the “Minister”) reassessed the Appellant on November 1, 2004
for the taxation years 2001 and 2002. The Minister held that the spousal
support payments were not deductible because of the wording contained in the Separation
Agreement.
[9] The Minister
reassessed the Appellant on June 6, 2005 for the taxation years 2003 and 2004 and
the Minister held that the spousal support were not deductible because of the
wording contained in the Separation Agreement.
[10] On August 19, 2005 the
Appellant filed Notices of Objection for the taxation years 2001, 2002, 2003
and 2004 with respect to the above reassessments.
[11] By letter dated
January 20, 2006 the Minister confirmed the reassessments for the taxation
years 2001, 2002, 2003 and 2004.
B. ISSUE
[12] The issue to be
determined is whether the Appellant is entitled to obtain deductions of the
following amounts in computing his income for the years indicated:
2001 $ 1,846.00;
2002 $23,998.00;
2003 $23,998.00; and
2004 $23,998.00
C. ANALYSIS AND DECISION
[13] Subsection 56.1(4)
of the Income Tax Act (the "Act") defines "child
support amount", "commencement day" and "support
amount". Subsection 56.1(4) reads as follows:
"child support amount" means any support
amount that is not identified in the agreement or order under which it is
receivable as being solely for the support of a recipient who is a spouse or
former spouse of the payer or who is a parent of a child of whom the payer is a
natural parent.
"commencement day" at any time of an
agreement or order means
(a) where the agreement or order is
made after April 1997, the day it is made; and
(b) where the agreement or order is
made before May 1997, the day, if any, that is after April 1997 and is the
earliest of
(i) the day specified as the commencement
day of the agreement or order by the payer and recipient under the agreement or
order in a joint election filed with the Minister in prescribed form and
manner,
(ii) where the agreement or order is varied
after April 1997 to change the child support amounts payable to the recipient,
the day on which the first payment of the varied amount is required to be made,
(iii) where a subsequent agreement or order
is made after April 1997, the effect of which is to change the total child
support amounts payable to the recipient by the payer, the commencement day of
the first such subsequent agreement or order, and
(iv) the day specified in the agreement or
order, or any variation thereof, as the commencement day of the agreement or
order for the purposes of this Act.
"support amount" means an amount payable or
receivable as an allowance on a periodic basis for the maintenance of the
recipient, children of the recipient or both the recipient and children of the
recipient, if the recipient has discretion as to the use of the amount, and
(a) the recipient is the spouse or
former spouse of the payer, the recipient and payer are living separate and
apart because of the breakdown of their marriage and the amount is receivable
under an order of a competent tribunal or under a written agreement; or
(b) the payer is a natural parent of
a child of the recipient and the amount is receivable under an order made by a
competent tribunal in accordance with the laws of a province.
[14] "Support"
in paragraph 60(b) of the Act reads as follows:
(b) Support -- the total of all amounts each of which is an amount determined by
the formula
A - (B + C)
where
A is the total of all amounts each of which
is a support amount paid after 1996 and before the end of the year by the
taxpayer to a particular person, where the taxpayer and the particular person
were living separate and apart at the time the amount was paid,
B is the total of all amounts each of which
is a child support amount that became payable by the taxpayer to the particular
person under an agreement or order on or after its commencement day and before
the end of the year in respect of a period that began on or after its
commencement day, and
C is the total of all amounts each of which
is a support amount paid by the taxpayer to the particular person after 1996
and deductible in computing the taxpayer's income for a preceding taxation
year;
[15] The Minister has
determined that for the purposes of subsection 60(b) of the Act
that the Separation Agreement is not a binding legal agreement.
[16] In considering the
position adopted by the Minister that the Separation Agreement was not binding
on the parties I refer to the Examination of Andrea Ashenbrenner (Ms. Ashenbrenner
was the Appellant’s lawyer and she prepared the Separation Agreement).
[17] The following
exchange took place:
Mr. McIvor – transcript page 8, lines 5-25; page 9, lines 1-2:
Q. On that
same page three, which is the bulk of paragraph five which appears on page
three, there is a reference to support of the children and it makes reference
in the last two sentences. Could you explain to the Court why there is an
absence of child support on this occasion?
A. First of all, it has to be kept in mind that this was an
interim agreement. Nothing was resolved in terms of the ultimate custody
arrangements that would be in place. At this point in time there was a joint
custody and equal sharing of time with one child and the other child was living
primarily with Ms. Ferguson. It was always Mr. Syrek's hope and desire that
ultimately this matter would be resolved on a basis of an equal sharing of time
with both children, and you will note that there is a provision in here that
says that the parties were going to be discussing the access arrangements with
a view to insuring that the best interests of the children would be met so this
was nothing that was carved in stone. It was just a temporary arrangement.
(Underlining added)
…
Mr. Larson (Counsel to Ferguson asked Ms. Ashenbrenner to answer the following
questions) – transcript page 14, lines 7-25; page 15, line 1:
Q. Now, going to the agreement itself
A. I have it here.
Q. Okay. On page six, paragraph twelve, is it correct to
interpret this document that, if the house sold first before there was either a
permanent separation or before there was a court order, that this agreement
would be at an end?
A. Yes. It was an interim agreement. (Underlining added)
Q. Was there any obligation to actively take steps to sell the
house?
A. I don't recall. There is a provision in the agreement that
says that the parties had agreed to list it for sale. I would suspect that the
delay to the January date was because of the Christmas holidays were coming up
quickly at the time this agreement was signed. It was late November.
…
Cross-examination by Ms. Piper – transcript
page 20, lines 11-25; page 21, lines 1-19:
Q. I just have one question. Well, two. Is it [sic] there a
program in Ontario for the
enforcement of orders or agreements?
A. Yes.
Q. Is it called the Ontario Family Support Program or something
along those lines?
A. Family Responsibility Office, yes.
Q. Just for clarification purposes, would someone in Ms.
Ferguson's situation rely on tab one of the agreement?
A. What is tab one of the agreement?
Q. Sorry. The agreement that you have before you?
A. Yes.
Q. Considering the language of paragraph seven, in your view, and
I know that you are not a legal expert but just your comments, would this
agreement be enforceable under that program?
A. No, it would not. If she wanted to enforce the payments being
made, she would have had to get another agreement or court order setting the
amount of the support.
Q. Is it fair to say that this agreement is not enforceable on a
provincial application?
A. I don't know if it would be fair to say that. I think it
would be fair to say that Ms. Ferguson could not enforce the spousal support
component of this agreement through the Family Responsibility Office.
(Underlining added)
[18] Section 7 of the
Separation Agreement provides that “… this agreement shall not be construed as
any indication that Syrek is able or liable to pay spousal support in the
amount set out herein, or at all”.
[19] In reviewing the
wording contained in paragraph 7 of the Separation Agreement I have concluded
that the Appellant was not liable to pay the spousal support in the amounts as
outlined above. In other words the Separation Agreement was not binding on the
Appellant.
[20] In reaching my
conclusion that the Separation Agreement did not create a legal obligation on
the Appellant to pay spousal support to Ferguson I have referred to a number of
Court decisions.
[21] In Hock v. Canada, [2003] T.C.J. No. 547,
the Honourable D.J. Rowe, Deputy Judge of the Tax Court of Canada was
considering the deduction of spousal support payments by the Appellant. At
paragraphs [9] and [10] of his Reasons for Judgment Judge Rowe said:
[9] … A close reading of
the agreement - Exhibit A-1 - does not reveal any binding obligation on the
part of the appellant as payer. There is no consideration flowing from Rebecca
Hock in that she did not forego any right to legal action - actual or
contemplated - in return for obtaining his promise to make certain payments on
a periodic basis or for any future specific purpose. The clause concerning the
additional payments read as follows:
Additional payments
will be in the form of both Specific-Purpose Payments and Periodic Payments.
These additional payments will all be Third Party Payments. All of these
payments are for the benefit of the recipient.
[10] In my view,
the language utilized is contemplative because - as the appellant stated in his
testimony - he was not certain of the exact nature and extent of the financial
demands about to be thrust upon him - in 2000 - due to the changed
circumstances flowing from the loss of his wife's employment and the ability to
earn an annual salary equal to his own. In that sense, the appellant chose not
to bind himself specifically to any particular payment schedule and wanted to
maintain a certain amount of control over the manner in which any payments
would be made.
[22] At paragraph [14]
Judge Rowe said:
[14] Returning to the within
appeal, it is apparent the so-called agreement - Exhibit A-1 - did not compel
the appellant to make any additional payments for any particular purpose on any
basis, periodic or otherwise. Instead, it was an expression of good will on his
part and it should be noted that he contributed a huge proportion of his net
pay to support his children and - indirectly - his wife. In my view, had the agreement
been worded properly by setting out the amount and nature of the payments to BC
Hydro with respect to not only the monthly consumption bills but also the
repayment of the cost of the energy renovation loan, the appellant would have
been entitled to the deductibility sought. Similarly, the mechanism for the
monthly payment of the mortgage could have been set forth in an agreement so as
to make it clear that it was clearly a support payment within the provisions of
the Act. By agreement, parties cannot bind the Minister to assessing a
named person in a specific manner in respect of monies paid and received if the
intended result is not supported by relevant provisions of the Act.
[23] The decision of
Judge Rowe in Hock was upheld by the Federal Court of Appeal (see 2004
FCA 336).
[24] Since the Separation
Agreement was not a binding legal document compelling the Appellant to pay spousal
support payments to Ferguson I have concluded that the Appellant is not
entitled to claim a deduction for spousal support paid in the 2001, 2002, 2003
and 2004 taxation years within the meaning of subsection 60(b) of
the Act. It also follows that the spousal support does not meet the
definition of “support amount” in accordance with subsection 56.1(4) of the Act.
[25] The appeals are
dismissed without costs.
Signed at Vancouver, British Columbia, this 17th day of August 2007.
“L.M. Little”
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