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Citation: 2005TCC180
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Date: 20050308
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Docket: 2003-4276(IT)I
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BETWEEN:
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SERGE BÉLANGER,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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and
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MIREILLE THOMAS,
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Third Party.
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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
(Delivered orally from the bench on November 19, 2004,
at Montréal, Quebec and amended for clarification and precision.)
Archambault J.
[1] Serge Bélanger is appealing from the assessment made by the Minister of National Revenue (Minister) for the 2001 taxation year. The Minister denied, in computing Mr. Bélanger's income, the deduction of the support amount that he paid to Mireille Thomas during 2001. Given the fact that the decision concerning Mr. Bélanger's appeal could affect a proposed assessment in respect of Ms. Thomas, the Minister saw fit to apply, under section 174 of the Income Tax Act (Act), to the Court for an order that Ms. Thomas be bound by this decision, and that application, with the agreement of Mr. Bélanger and Ms. Thomas (taxpayers), was allowed.
[2] The central issue is whether the support amount paid by Mr. Bélanger in 2001 met all the conditions required by the Act for it to be deductible from Mr. Bélanger's income and included in Ms. Thomas's income. The relevant provisions are the definition of "support amount" in subsection 56.1(4) and paragraph 60(b), which I have reproduced below:
56.1(4) Definitions - The definitions in this subsection apply in this section and section 56.
. . .
"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 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.
60 Other deductions-There may be deducted in computing a taxpayer's income for a taxation year such of the following amounts as are applicable
. . .
(b) Support [spouse/common-law partner and child] - 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,[1]
. . .
[Emphasis added.]
[3] The condition that poses a problem is the one requiring that the amounts that may be deducted by Mr. Bélanger and included in Ms. Thomas's income must have been paid under an order of a competent tribunal or under a written agreement. As there was no order from a competent tribunal, it must be determined whether there was a "written agreement" within the meaning of the definition of "support amount."
[4] At the beginning of the hearing, the taxpayers admitted the facts set out in subparagraphs 11(a) and (b) of the Respondent's Reply to Mr. Bélanger's Notice of Appeal. Mr. Bélanger also admitted subparagraphs (c)(i) and (ii). As to Ms. Thomas, she admitted subparagraph 11(d). Below, I have reproduced paragraph 11 of the Reply to Notice of Appeal:
[TRANSLATION]
(a) the Appellant and Mireille Thomas have three children:
(i) Émilie, born in 1984,
(ii) Étienne, born in 1986,
(iii) Sarah, born in 1989;
(b) the Appellant and Mireille Thomas lived separate and apart during the year at issue;
(c) on April 29, 1997, the Appellant and Mireille Thomas signed a document entitled [TRANSLATION] "Covenant," in which the following clauses were stipulated:
(i) Mireille Thomas acknowledges having received from the Appellant the sum of $3,500 as interim support for the three minor children Émilie, Étienne and Sarah, for the period from December 15, 1996, to April 29, 1997, as is more fully described in Appendix 1 attached hereto;
(ii) the parties agree that the interim support will be taxable for Mireille Thomas and deductible for the Appellant until a judgment is rendered in this case;[2]
(d) the Appendix accompanying the document entitled "Covenant," dated April 29, 1997, simply lists dates and different amounts with regard to different periods:
(i) two amounts of $375 for two periods of 15 days,
(ii) five amounts of $150 for five periods of one week,
(iii) ten amounts of $200 for ten weekly periods;
(e) the amounts listed in the Appendix accompanying the document entitled "Covenant," dated April 29, 1997, do not flow from an order of a competent tribunal, a judgment rendered by a court or a written agreement between the parties;
(f) of all the amounts listed the Appendix accompanying the document entitled "Covenant," dated April 29, 1997, only those for $200 arise, in part, from the correspondence between the parties' counsel, a counter offer in the letter from the Appellant's counsel dated February 18, 1997;
(g) the Minister considers that the document entitled "Covenant," which was signed by the parties on April 29, 1997, is not an eligible written agreement for the following reasons:
(i) the amount of money to be paid was not specified in the document,
(ii) the document entitled "Covenant," which was signed by the parties on April 29, 1997, does not confirm a prior agreement,
(iii) the weekly amount of $200 does not flow from a written agreement between the parties,
(iv) the counter offer from the Appellant's counsel (the weekly amount of $200), referred to in the letter dated February 18, 1997, was not the subject of a written, clear and unambiguous acceptance between the parties.
[5] It is necessary to point out a few of the important steps in the taxpayers' divorce procedure. The divorce application (Exhibit A-1) and the motion for provisional measures (Exhibit A-2) were signed by Ms. Thomas's counsel on September 23, 1996. In that application and motion, it is indicated that Ms. Thomas needs, for her minor children, weekly support of $500. On January 15, 1997, Ms. Gauvin, Mr. Bélanger's counsel, sent Mr. Tellier, Ms. Thomas's counsel, three support cheques for $150 each for the period from January 16, 1997, to February 5, 1997.[3] She also provided Mr. Bélanger's income statement. Lastly, she notes that the "motion will be continued on February 19, 1997 . . ."[4] One month later, on February 14, 1997, Ms. Gauvin sent Mr. Tellier two other support cheques for $150 each for the period from February 6 to February 18, 1997. In her letter dated February 18, 1997, (Exhibit A-17) she notes Mr. Tellier's remarks that Ms. Thomas's examination (probably on her affidavit and income[5]) and her motion[6] could be postponed to a later date insofar as Mr. Bélanger agreed to pay an additional sum of $50 per week. Consequently, Ms. Gauvin indicated that [translation] "without prejudice to the rights and remedies of [her] client in this case, [her] client agrees to pay, on an interim basis, an amount of $200 per week until a judgment is rendered in this case."
[6] The only document (Covenant) signed by the taxpayers which is entitled "Covenant" is that of April 29, 1997, which only contains the two clauses reproduced in subparagraph 11(c) of the Reply to Notice of Appeal.[7] In my opinion, paragraph 1 of the Covenant is merely an acknowledgement of receipt of the $3,500 paid to Ms. Thomas by Mr. Bélanger. That amount relates to the period from December 15, 1996, to April 29, 1997. It should be noted that when the Covenant was signed, Mr. Tellier had no evidence of the remittance of five $150 cheques. He then wrote a letter to Ms. Gauvin on April 30, 1997, (Exhibit A-11) informing her that his client had signed the attached Covenant [translation] "on the condition that the cheques totalling $3,500 be proven."
[7] As to the second paragraph of the Covenant, it is somewhat ambiguous. It deals with the tax treatment that the support should receive, probably the $3,500 mentioned in paragraph 1. However, it is also mentioned that this tax treatment will be in force [translation] "until a judgment is rendered in this case," which implies that support amounts could have been paid after April 29, 1997. Ms. Thomas interprets that as follows: the Covenant only had a limited scope, limited in fact to the sum of $3,500, and that sum had been voluntarily paid by Mr. Bélanger. Ms. Thomas did not think that she was bound by the Covenant for the period subsequent to April 1997. That impression was apparently given to her by her counsel, Mr. Tellier, when she signed the document. It should be added that this counsel indicated in postscript in the letter dated April 30, 1997, that [translation] "the Covenant was signed as a compromise and to cooperate," that is, in all probability, to support the deductibility of the $3,500 in support already paid.[8]
[8] Regardless of whether the scope of the second paragraph of the Covenant was limited to the $3,500, it still remains that its purpose was simply to confirm the tax treatment of the amounts paid. I see nothing in the Covenant, or the attached Appendix 1, that allows me to determine that Mr. Bélanger undertook to pay weekly support of $200. It is therefore possible to determine that the weekly support of $200 was voluntarily paid by Mr. Bélanger pursuant to the proposal made by Ms. Gauvin.
[9] The analysis of the correspondence between Ms. Gauvin and Mr. Tellier reveals that this amount was paid pending a decision from the Superior Court on the motion for provisional measures.[9] Furthermore, the parties continued to negotiate certain provisional measures, such as Mr. Bélanger's rights of access to the children (A-7), and attempted to complete examinations on discovery regarding, in particular, the parties' income sources, in order to be able to proceed with the hearing on the motion for provisional measures.
[10] If there was an agreement to pay support, it was verbal. If Mr. Bélanger had stopped paying the $200, Ms. Thomas would have had no other choice but to go to the Superior Court to seek determination of support and an order directing its payment. That is precisely what happened in September 1997. In fact, Mr. Bélanger stopped paying the support as of September 10, 1997, and on October 6, 1997, Mr. Tellier wrote to Ms. Gauvin to inform her that [translation] "unless the cheques are received within three days [he would be] required to serve [her] a new notice of presentation [of the motion for provisional measures]."[10] (Exhibit A-15). I agree with the Respondent's counsel when she states that the Superior Court would not be able to confirm the April 1997 Covenant because that Covenant did not clearly stipulate that there was an obligation to pay $200.
[11] As I wrote recently in Poirier v. Canada, [2004] T.C.J. No. 556 (Q.L.),[11] the parties' agreement must be a written agreement contemplated in sections 56 and 60 of the Act. In this case, the written agreement is merely a receipt for the $3,500 paid as support and an agreement dealing with the tax treatment of that sum. The taxpayers cannot act together to make the support payable under a verbal agreement deductible for tax purposes. There must be a "written" agreement or an order from a competent tribunal.
[12] For there to be a valid agreement within the meaning of the Act, the payer's obligation to pay support must be established in writing. Tardif J. adopts the same interpretation in Roy v. Canada, [2002] T.C.J. No. 20 (Q.L.), at paragraph 20:
For the inclusion and deduction of alimony to apply, the amounts must be received under an order of a tribunal or under a written agreement and the payments must be consistent with the obligation that imposed them. A payment is consistent with an order of a tribunal or with a written agreement if it is made in accordance with the legal obligation created in that order or agreement.
[Emphasis added.]
[13] Deputy Judge Rowe also adopted this approach in Hock v. Canada, [2003] T.C.J. No. 547 (Q.L.), and his decision was confirmed by the Federal Court of Appeal, [2004] F.C.J. No. 1676 (Q.L.). For the Court, Nadon J. wrote the following at paragraph 4 of his reasons:
. . . Specifically, although he was sympathetic to the Appellant's plight, Judge Rowe concluded that the agreement pursuant to which the payments were made was merely contemplative, that it did not bind the Appellant to make any payment and, finally, that the agreement did not compel the Appellant to make any payment for any particular purpose on any basis, . . .
[Emphasis added.]
[14] In conclusion, the Covenant of April 29, 1997, does not create any obligation for Mr. Bélanger to pay the sum of $200 per week and the written agreement required by the Act does not exist in this case. As previously mentioned, there is no evidence that this sum was paid under an order of a competent tribunal. All the conditions were not met for Mr. Bélanger to be able to deduct the support that he paid. Mr. Bélanger's appeal is dismissed and Ms. Thomas is bound by this decision according to which she was not required to include in her income the amounts received from Mr. Bélanger in 2001, without costs.
Signed at Ottawa, Canada, this 8th day of March 2005.
Archambault J.
Translation certified true
on this 26th day of August 2005.
Aveta Graham, Translator
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