Citation: 2007TCC20
Date: 20070118
Docket: 2005-3611(IT)I
BETWEEN:
RAYMOND F. FORTUNE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan, J.
[1] The Appellant,
Raymond Fortune, is appealing the reassessment of the Minister of National
Revenue of his 2003 taxation year. The Minister disallowed the deduction
claimed by the Appellant in respect of child support payments. While conceding
that such payments were made, the Minister decided they were not deductible
because they were not made pursuant to a "written agreement" as
required under the Income Tax Act.
[2] In assessing the
Appellant's 2003 taxation year, the Minister made the following assumptions:
(a) throughout the 2003 taxation year, the
Appellant and his spouse, Catherine Fortune, were living separate and apart
because of a breakdown in their marriage;
(b) the Appellant and Catherine Fortune are the
parents of (2) two children, Erin, born January 1987 and Kayla, born June 1989;
(c) as it was never
established that the Appellant paid the amounts at issue to Catherine Fortune,
the Minister proceeded on the basis that such amounts had not been paid; and
(d) the Appellant was not required to pay the
claimed amounts pursuant to a decree, order or judgment of a competent tribunal
or pursuant to a written agreement.
[3] Paragraph 60(b)
of the Act permits the deduction of a child support payment if it is a
"support amount" as defined in paragraph 56.1(4):
"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 common-law partner or former
spouse or common-law partner of the payer, the recipient and payer are living
separate and apart because of the breakdown of their marriage or common-law
partnership 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 the 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.
[4] The Appellant
has the onus of proving wrong the assumptions. With respect to paragraph 7(d),
he admits that the child support payments were not made pursuant to a court
order or a formal written agreement between him and his spouse. He argues,
however, that certain other documents, when considered in light of his having
actually made the payments claimed, constitute a "written agreement"
within the meaning of the Act.
[5] According to the Appellant, there had been no need for a court order because when
they separated, he and his spouse had been able to agree to the terms of the
payment of child support. Similarly, having thus worked things out between
themselves without legal advice, no formal written agreement setting out the
terms of their agreement was ever prepared. At some point in 1993 however, he
had received a written request from his spouse for payment of child support. Although
he no longer had that document in his possession, the Appellant testified that
it was in accordance with its terms that he began making monthly payments. In
1995, the amount was changed to $150, the amount he had been paying since that
time. He put in evidence copies of the cancelled cheques
for 2003. He also furnished a copy of a receipt from his spouse for the 2003
payments along with the originals of receipts for 2000
and 2001.
[6] Counsel for the
Respondent argues that the Appellant's admission that there was no written
agreement is sufficient to put an end to the matter and further, that the Court
ought to draw a negative inference from the failure of the Appellant to call
his spouse to testify as to their agreement.
[7] On this latter
point, the appeal was heard under the Informal Procedure; the Appellant was
represented by his financial advisor who had no legal training. Against this
backdrop and mindful of the Appellant's evidence that the marriage breakdown had
left relations with his spouse somewhat strained, I am not persuaded that any
negative inference ought to be drawn.
[8] As for counsel's argument that the Act requires that there be a written
agreement, however, I am inclined to agree. What constitutes a "written agreement"
within the meaning of paragraph 60(b) has been given much judicial
consideration. While I am sympathetic to the situation in which the Appellant
finds himself, the case law does not support his position.
[9] In Knapp v.
M.N.R., the facts
were similar to those of the present case; indeed, the appellant in Knapp was
in a stronger position than the Appellant in that he was at least able to put
in evidence a copy of a separation agreement which, though unsigned, contained
the terms of the agreement between the spouses. Even so, Christie, A.C.J. dismissed
the appeal summarizing Mr. Knapp's position as follows:
The essence of the appellant's position in
this regard is stated in these extracts from his Notice of Appeal which was
reiterated here this morning. After listing the receipts previously mentioned,
the Notice goes on:
As these receipts show I paid to my ex-wife
the above amounts in the months indicated in the year 1981.
During the course of the year 1981 several
differences arose during our negotiations for a separation agreement. Although
there were these differences an agreement was reached for the amount of money
to be paid by me each month to her.
These receipts were provided to me to prove
that she had agreed to the amounts indicated and also proof that she had
received the money.
...
It is hoped that the [Court] will consider
that the cheques written by me, are on my part, a written agreement to pay the
amount indicated.
And that the receipts given to me by my ex-wife
for the money received is a written agreement on her part.
I also
refer to Exhibit A-1, which is a detailed separation agreement dated August 11,
1981, prepared by the solicitor for the appellant's then wife. It was signed by
Mrs. Knapp, but not by the appellant who disagreed with some of the terms.
[10] Christie A.C.J. then
concluded that:
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 11(1)(1)*. [FOOTNOTE * : Paragraph 11(1)(1) is now paragraph
60(b).]
[11] This decision was
considered by Bowman, A.C.J. (as he then was) in Foley v. Canada,
another case with facts quite similar to those of the present matter:
26
The Kapel decision was quoted with approval by Christie, A.C.J.
(as he then was) in Knapp v. Minister of National Revenue (1985), 85
D.T.C. 424 (T.C.C.). In that case, there was nothing that could be called a
written agreement signed by either party. The appellant argued that the cheques
signed by the husband and the receipts signed by the wife were a written
agreement. Such an argument was obviously doomed. The word
"agreement" denotes at least a binding obligation.
[12] The rationale for
the requirement of a "written agreement" was explained by the Federal
Court of Appeal in Hodson v. Canada:
… spouses who
live together are not allowed to split their income thereby reducing the total
tax bill of the family. Paragraph 60(b) provides an exception to that
general rule and confers upon separated spouses who come within its terms and
conditions certain tax advantages. Parliament has spoken in clear and
unmistakable terms. Had Parliament wished to extend the benefit conferred by
paragraph 60(b) 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 case 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. [Footnote 11 added.]
[13] It must be noted
that the above decision pre-dated the changes to the deductibility of child
support payments. As counsel for the Respondent quite rightly pointed out in
his argument, another object of the requirement for a written agreement is to
provide a means of determining whether the agreement was in place prior to the May
1997 legislative changes which, except in certain limited circumstances,
rendered child support payments no longer deductible. Further, the existence of
a written agreement provides a means for determining whether there have been
changes to a pre-1997 agreement; certain changes will trigger a "commencement
day" thus depriving the payments of their previously held deductibility.
[14] In the present
matter, even assuming the existence of his spouse's written request, that and the
cancelled cheques and receipts are not sufficient to satisfy the Act's precondition
of deductibility of a "written agreement" pursuant to which the
Appellant made the child support payments; accordingly, the appeal must be
dismissed.
Signed at Ottawa, Canada, this 18th day of January, 2007.
"G. Sheridan"
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