Citation: 2008TCC596
Date: 20081107
Dockets: 2007-773(IT)I
2008-1779(IT)I
BETWEEN:
EDWIN WITZKE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Webb, J.
[1]
The issue in these appeals is
whether the Appellant is entitled to deduct, in computing his income for the
purposes of the Income Tax Act (the “Act”), the amounts that he
paid to his spouse in 2002, 2003, 2004, and 2005 at a time when he and his
spouse were living separate and apart. Alternatively, the Appellant submitted
that he should be “allowed the married exemption” for his spouse.
[2]
The Appellant and his wife were
married on August 2, 1963. On June 1, 2001, the Appellant's wife moved out and
they have been living separate and apart ever since.
[3]
The Appellant consulted a lawyer
with respect to his obligations to his spouse and he was informed that he
should be making payments to her. The Appellant made monthly payments to her in
2002 and 2003. In 2004, he consulted another lawyer who again confirmed that he
should be making payments to her so he continued to do so. Unfortunately neither
lawyer indicated to the Appellant that these payments must be made pursuant to
a written agreement or a court order if the Appellant was planning to claim a
deduction under the Act in relation to these payments.
[4]
He consulted a third lawyer who
worked on preparing a written agreement between the Appellant and his spouse
related to various issues including the amounts that he was paying to her. This
culminated in an agreement that was made between the Appellant and his spouse.
The Appellant signed this agreement on December 5, 2005. However, the
Appellant's spouse would not sign this agreement. In particular, the
Appellant's wife objected to parts of Article 2 of the agreement which dealt
with spousal support. Following the deletion of certain parts of Article 2, the
Appellant's wife signed the agreement on January 16, 2006.
[5]
Paragraph 60(b) of the Act provides
a deduction for certain payments paid as spousal support. Paragraph 56(1)(b) of
the Act is the corresponding provision that would require the
Appellant’s spouse to include the amounts in her income if the applicable
conditions for the Appellant to claim a deduction are satisfied. Therefore if
the support payments are deductible by the Appellant, the support payments would
be income of the Appellant’s spouse. Paragraph 60(b) of the Act provides
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) 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;
(emphasis added)
[6]
Support amount is defined in
subsection 56.1(4) of the Act as follows:
“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 legal 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.
(emphasis
added)
[7]
Therefore in order to be a support
amount, and hence an amount that will be deductible by the payer (and income to
the recipient) the amount must be paid (and hence receivable) under an order of
a competent tribunal or under a written agreement. In this case, there was no
order of a competent tribunal dealing with support amounts and the only written
agreement is the one referred to above, that was not made until the Appellant's
wife signed it in 2006. Therefore the payments made by the appellant in 2002,
2003, 2004 and 2005 (subject to the provisions of subsection 60.1(3) of the Act)
could not be considered to be made under this agreement as this agreement did
not exist until 2006.
[8]
Subsection 60.1(3) of the Act
provides that in certain situations payments made prior to an agreement in
writing being made could be considered to be made under that agreement. This
subsection provides as follows:
60.1(3) For the purposes of this
section and section 60, where a written agreement or order of a competent
tribunal made at any time in a taxation year provides that an amount paid
before that time and in the year or the preceding taxation year is to be
considered to have been paid and received thereunder,
(a) the amount is deemed to have
been paid thereunder; and
(b) the
agreement or order is deemed, except for the purpose of this subsection, to
have been made on the day on which the first such amount was paid, except that,
where the agreement or order is made after April 1997 and varies a child
support amount payable to the recipient from the last such amount paid to the recipient
before May 1997, each varied amount of child support paid under the agreement
or order is deemed to have been payable under an agreement or order the
commencement day of which is the day on which the first payment of the varied
amount is required to be made.
[9]
As noted above, certain parts of
Article 2 were stricken from the agreement before the Appellant’s spouse would
sign the agreement. The following part was stricken from the agreement before
the Appellant's wife would sign it:
The parties acknowledge and agree
that the Husband has paid to the Wife by agreement of the parties, and the Wife
has received, as monthly spousal support, commencing January, 2004 the
following amounts:
(a) $1,733.90
per month from January 1, 2004 to December 31, 2004, for a total of $20,806.80
in 2004;
(b)
$1,399.30 per month from January 1, 2005 to December 31, 2005, for a
total of $16,791.60 in 2005.
[10]
Both the Appellant and his spouse
initialed the agreement to reflect their acknowledgement and agreement with the
deletion of the above part of Article 2. Other changes were made to the next
paragraph of Article 2. Prior to the changes made to this paragraph, it read as
follows:
The Husband
shall continue to pay the sum of $1399.30 per month as monthly spousal support
on the first day of each and every month, commencing the 31st day of January,
2006, provided that such spousal support shall end and forever cease commencing
with the payment otherwise due the month after the Wife is in receipt of her
share of the Husband's pension as hereinafter provided for.
The words “continue to” were
stricken from this paragraph and the amount of $1,399.30 was changed to “$1,408
plus the cost of living allowance increases”. As well, the words “first day”
were stricken from the second line.
[11]
The parties did not delete the
third paragraph of Article 2 which provided that:
The parties
agree that the payments of spousal support previously made and to be made in
the future shall be taxable income in the hands of the Wife and tax deductible
for the Husband.
[12]
This last paragraph of Article 2
might suggest that the parties intended to have the provisions of subsection
60.1(3) of the Act (and the corresponding subsection for the recipient,
subsection 56.1(3) of the Act) apply. However the Appellant testified
that it was his understanding when the agreement was signed that the effect of
deleting the first part of this Article 2 was that he would not be entitled to
claim any deduction for the amounts that he had paid prior to 2006. When he was
referred to this last paragraph of Article 2 he stated that it was probably an
oversight that this paragraph had not been deleted. The Appellant clearly
understood that his spouse did not want to include any payments made to her
before 2006 in her income and that he would not be entitled to claim a
deduction for these amounts.
[13]
In Cheshire, Fifoot &
Furmston’s Law of Contract, 14th edition, it is stated at page 267
that:
Equity, in the exercise of its
exclusive jurisdiction, has satisfactorily dealt with cases where, though the
consent is undoubted and real, it has by mistake been inaccurately expressed in
a later instrument. Suppose that A orally agrees to sell a house, exclusive of
its adjoining yard, to B. Owing to a mistake the later formal and written
instrument includes the yard as part of the property to be sold, and, what is
worse, the subsequent conveyance actually conveys the yard to B. Can A have the
written agreement and the deed rectified, or will he be successfully met by the
plea that what has been written and signed must stand?
It must be
answered at once that in cases of this type, where it is proved that owing to a
mistake the written contract does not substantially represent the real
intention of the parties, the court has jurisdiction, not only to rectify the
written agreement, but also to order specific performance of it as rectified.
[14]
In Anson’s Law of Contract, 28th
edition at page 339 it is stated that:
Where a
contract has been reduced to writing, or a deed executed, and the writing or
deed, owing to mutual mistake, fails to express the concurrent intentions of
the parties at the time of its execution, the Court will rectify the document
in accordance with their true intent.
[15]
The issue in this case is not
whether the agreement should be rectified to delete the last paragraph of
Article 2 (which, since this Court is not a court of equity (Sunil
Lighting Products v. Minister of National Revenue, [1993] T.C.J. No.
666), could not be done in any event), but rather whether in applying the
provisions of subsection 60.1(3) of the Act to the Appellant, should the
agreement be read with or without the last paragraph of Article 2? Since the Appellant
clearly stated that it was his understanding that as a result of the deletion
of the first part of Article 2 he would not be entitled to deduct the payments
made before 2006 in computing his income and, when he was directed to this last
paragraph of Article 2, he stated that the failure to delete this paragraph was
probably an oversight, in my opinion, given that the inclusion of this
paragraph would have been for the benefit of the Appellant and the detriment of
the Appellant’s wife and that the Appellant is acknowledging that this
paragraph should not be in the agreement, it would not be appropriate for me to
deal with this last paragraph of Article 2 as part of the agreement.
[16]
It seems clear that when the agreement
was originally drafted and signed by the Appellant, the provisions of Article 2
were intended to allow the Appellant to claim a deduction for the amounts paid
in 2004 and 2005 (assuming that the Appellant's wife would have signed in
December 2005). Since this part was stricken from the agreement before the Appellant’s
spouse would sign the agreement, this part cannot be considered to be part of
the agreement that was made in 2006 and the payments made in 2005 (which would
be the preceding year) are not deductible.
[17]
The Appellant, in the alternative,
asked for a tax credit because he was still married to his wife and because he
was supporting her. The credit for a person who is supporting his or her spouse
is provided by paragraph 118(1)(a) of the Act which provides in part as
follows:
118. (1) For the purpose of
computing the tax payable under this Part by an individual for a taxation year,
there may be deducted an amount determined by the formula
A × B
where
A is the appropriate
percentage for the year, and
B is the total of,
(a) in the case of an individual
who at any time in the year is a married person or a person who is in a
common-law partnership who supports the individual's spouse or common-law
partner and is not living separate and apart from the spouse or
common-law partner by reason of a breakdown of their marriage or common-law
partnership, an amount equal to…
(emphasis
added)
[18]
Since the Appellant was living
separate and apart from his spouse throughout 2002, 2003, 2004 and 2005, he is
not entitled to claim a credit under paragraph 118(1)(a) of the Act.
[19]
As a result, the appeals are dismissed
without costs.
Signed at
Halifax, Nova Scotia, this 7th day of November, 2008.
“Wyman W. Webb”
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