Citation: 2006TCC643
Date: 20061124
Docket: 2005-4277(IT)I
BETWEEN:
EUGENE SKRIPKARIUK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
O'Connor, J.
[1] The issue in this appeal is whether in the 2003 taxation year the Minister of National Revenue ("Minister") was correct in disallowing the Appellant's claim for support payments in the amount of $11,489.54 because the Appellant could not produce a written agreement or appropriate Court Order providing for said support payments.
[2] The reassessment containing the disallowance was dated April 4, 2005 and following a Notice of Objection by the Appellant on April 21, 2005, the Minister issued a Notice of Confirmation dated September 12, 2005 confirming the reassessment.
[3] The relevant facts and assumptions are contained in the Reply to the Notice of Appeal ("Reply") and read as follows:
1. (a) the Appellant wrongfully assumed the information he provided pertaining to conditions of a Recognizance (in respect of a criminal charge of assault on his ex-spouse, occurring on April 13, 2003), was a "Court Order document" indicating his support payment obligations, and he wrongfully assumed it was sufficient to meet the registry of support payment requirements;
(b) the Appellant provided a form letter "Registration of Family Support Payments" (form T1158) along with the Recognizance form, with his 2003 income tax return;
(c) the Appeals Division of the Canada Customs and Revenue Agency ("CCRA") failed to recognize that the Support amounts claimed in the 2003 taxation year by the Appellant, in the amount of $11,489.54, were deductible; and
(d) the CCRA acknowledged that the Appellant was required to pay Support payments commencing November 1, 2004, pursuant to "Separation Agreement" dated November 26, 2004 (the "Agreement"), signed by the Appellant and his ex-spouse, Jolanta Skripkariuk, on February 1, 2005.
2. He has no knowledge of the remaining allegations of fact contained in the Appellant's Notice of Appeal.
3. In computing income for the 2003 taxation year, the Appellant claimed a deduction for Support payments in the amount of $11,489.54.
4. The Appellant was assessed for the 2003 taxation year, as filed. The Notice of Assessment is dated May 25, 2004.
5. The Appellant was reassessed for the 2003 taxation year. The Notice of Reassessment is dated April 4, 2005. In reassessing the Appellant, the Minister of National Revenue (the "Minister") disallowed the Appellant's claim for Support payments in the amount of $11,489.54, as the Appellant had not provided a written agreement or appropriate Court Order that addressed his Support payment obligations.
6. The Appellant filed a Notice of Objection to the reassessment for the 2003 taxation year, which was received on April 21, 2005.
7. The Minister confirmed the reassessment for the 2003 taxation year by Notification of Confirmation dated September 12, 2005.
8. In reassessing tax for the 2003 taxation year, and in confirming that reassessment, the Minister assumed the same facts as follows:
a) the Appellant and his ex-spouse, Jolanta Skripkariuk, lived separate and apart due to a breakdown in their marriage from April 14, 2003 until October 19, 2003, at which time they reconciled and lived together again until October 30, 2004;
b) as at November 1, 2004, the Appellant and Jolanta commenced living separate and apart again, due to another breakdown in their marriage;
c) the Appellant and Jolanta have two (2) children, Nicole, born March 1989 and Philip, born March 1985;
d) during 2003, the Appellant paid amounts totalling $20,939.54, from April 14, 2003 to October 13, 2003, consisting of periodic monthly payments totalling $6,700.00 paid directly to Jolanta, 3rd party payments relating to a car loan, car insurance and a line of credit loan totalling $4,789.54, and periodic monthly payments for the support of the children totalling $9,450.00;
e) during the 2003 taxation year, the Appellant is claiming a deduction in the amount of $11,489.54 relating to the periodic monthly payments totalling $6,700.00 and the 3rd party payments totalling $4,789.54;
f) none of the amounts noted in subparagraph 8(d) above were made in accordance with a court order or written agreement made between the Appellant and Jolanta Skripkariuk;
g) the Agreement signed by the Appellant and Jolanta on February 1, 2005, indicated that the Appellant, as of November 1, 2004, was to pay, directly to Jolanta, Spousal support of $1,486.00 per month, 3rd party payments of $1,344.72 for a certain time period, for the benefit of Jolanta, and Child support of $1,448.00 per month; and
h) the Agreement was entered into by the Appellant and Jolanta Skripkariuk more than one year after the Appellant paid the amounts of $20,939.54 to Jolanta in the 2003 taxation year.
All of the assumptions listed in paragraph 8 were admitted by the Appellant.
[4] The principal submissions of the Minister are contained in paragraphs 11 and 12 of the Reply and read as follows:
11. He respectfully submits that none of the amounts paid by the Appellant in the 2003 taxation year totalling $20,939.54, are "support amounts" payable by the Appellant or receivable by the Appellant's ex-spouse under an order or written agreement, within the meaning of subsection 56.1(4) of the Act, nor are the 3rd party payments caught by subsections 56.1(2) and 60.1(2) of the Act.
12. He further submits that the Agreement was entered into more than a year after the Appellant paid the amounts in the 2003 taxation year, and as such they are not caught by subsection 60.1(3) of the Act.
[5] For a support amount to be deductible from income under paragraph 60(b) of the Income Tax Act ("Act") it must comply with the definition in subsection 56.1(4) of the Act, which provides as follows:
"support amount" - "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 ...
[6] Subsection 60.1(3) allows for the deduction of payments made prior to a court order or written agreement but only with regard to payments made in the taxation year when the order is given or the agreement dated and to payments made in the prior taxation year. Under the Agreement signed on February 1, 2005, therefore the support payments made in 2004 were deductible but not those in 2003.
[7] None of the documents submitted as Exhibits in the form of Court Orders or similar Orders from the Court such as the Bond, the Court Restraining Order and other documents related to when the Appellant was arrested for assaulting his wife in April 2003 contain any provisions with respect to support.
[8] The question remains, therefore, was there a written agreement providing for support which would cover the payments in 2003. Regrettably there is no such written agreement.
[9] The Appellant testified that as soon as the court proceedings leading to the Restraining Order were completed in 2003, he issued post-dated cheques to his wife to cover the amounts which were considered adequate to support his wife and his children. There is no doubt that these were handed to the wife and in due course endorsed. There is some jurisprudence that indicates that endorsed cheques considered alone cannot form the basis of or be a written agreement as contemplated by the Act. In one case when the endorsed cheques were coupled with another document confirming an agreement relative to the cheques then the two documents combined were sufficient to comply with the requirement of a written agreement. In the present case, however, I am satisfied that the documents submitted in their entirety in this appeal cannot be considered as constituting a written agreement required by the Act.
[10]The Appellant makes another argument to the effect that the Minister's delay in advising him that the documents he submitted were not adequate to constitute registration of a written agreement caused the Appellant a prejudice. In other words had he been advised sooner he would have entered earlier into a written Agreement such as the one signed February 1, 2005 which enabled him to deduct the separation payments made in 2004. The Minister accepted that Agreement and acknowledged the Appellant was indeed required to pay support payments commencing November 1, 2004 and allowed him the deduction for the payments made in 2004. It was clear however that that Agreement could not extend back to 2003 and there is no doubt that that position is correct, but the Appellant faults the Minister's delays in processing the documents submitted and not advising the Appellant until such time as it was too late with respect to the 2003 payments.
[11]The Appellant was supported by his wife who appeared and spoke briefly. She stated that the Appellant and she never considered it necessary to have a written agreement because the Appellant voluntarily agreed to make the payments which they both considered were at the very least satisfactory. They did it amicably and voluntarily and the Appellant gave cheques to his wife. Moreover, she stated that because matters were settled amicably and voluntarily there was no need for lawyers.
[12]The Appellant stated further that had he failed to voluntarily make the payments then it would have been necessary to retain lawyers and that would have produced a Court Order or written agreement ordering him to make the 2003 payments and thus he would have been able to deduct the same.
[13]One might question the reason for this rigorous requirement of a Court Order or written agreement. It is quite possible that it stems from the following. As a general rule, the Act does not permit income splitting, including splitting of income between spouses when one spouse is the income earner and the other is not or is only a minimal earner. Splitting in such a situation would produce less overall tax. Consequently it is not allowed in normal situations. However, at least one exception occurs when spouses separate. The Act acknowledges that when two separate households are involved there is greater overall expense and accordingly the splitting of income was allowed, with a resultant of a lowering of tax but rigorous conditions were imposed. However to ensure good faith the Act puts in the requirement of a written separation agreement or court order providing for the support payments. Moreover there are requirements in the Act for registration of the court order or separation agreement.
[14]It is most regrettable to see a situation such as the present where payments have been made voluntarily, where the Minister acknowledges that the payments have been made, where the Appellant and his wife acknowledge that the payments were agreed to and both of them, notwithstanding the difficulties they have been through, have been doing their best to keep themselves and their family together and make the marriage work.
[15]However, there are many situations where unfairness can result from application of the Act's provisions to certain factual situations but nevertheless a Court is obliged to enforce those provisions. However in this case, the Minister's delay in processing the registration documentation and in finally acknowledging that the Appellant was not entitled to the deduction claimed may well have contributed to the inability, from a timing point of view, for the Appellant to rectify the situation and get a written agreement signed in time to validate the deduction of the 2003 separation payments, but this delay is not sufficient to alter the application of the Act.
[16]In conclusion there was no written agreement or court order as required by subsection 56.1(4) of the Act. Consequently, the appeal is dismissed. There shall be no costs.
[17]As a final note, because of the apparent unfairness in the application of the provisions and the fact that the voluntary payments were made which would normally permit a deduction, except for the technical requirement of a written agreement and because the delays of the Minister contributed to the inability of the Appellant to rectify matters and produce documentation that would satisfy the Minister, it is strongly recommended that the Appellant consider applying for a remission order under the Financial Administration Act, R.S.C. 1985, c. F-11.
Signed at Ottawa, Canada, this 24th day of November, 2006.
"T. O'Connor"
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