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Citation:2005TCC487
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Date: 20050805
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Docket: 2004-3662(IT)I
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BETWEEN:
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JATINDER KHAIRA,
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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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REASONS FOR JUDGMENT
Sheridan,
J.
[1] The Appellant, Jatinder Khaira, appealed
the Notices of Reassessment of the Minister of National Revenue for his 2000
and 2001 taxation years in which the Minister disallowed the deduction of
spousal and child support amounts. In reaching his decision, the Minister
assumed that the payments he made to his wife Raminder Khaira were not paid by
Mr. Khaira pursuant to a written agreement, and that Mr. and Mrs. Khaira were
not living separate and apart in 2000 and 2001. Accordingly, these payments
were not “support amounts” under paragraph 60(b) of the Income Tax
Act and were not deductible.
[2] Both Mr. and Mrs. Khaira testified. No
witnesses were called for the Crown. The validity of the agreement between Mr.
and Mrs. Khaira is a question of mixed fact and law; whether they were living
separate and apart is a question of fact.
[3] According to their evidence, prior to his
marriage to Mrs. Khaira in August 1990, Mr. Khaira was living with his parents
at their residence in Scarborough. Although registered only in his parents’
names, Mr. Khaira had contributed to the purchase price of the property.
Immediately after the wedding, Mrs. Khaira began living with her husband in his
parents’ home. Two children were born, one in October 1991 and the second on
December 28, 1993. Around this time, the couple separated. The separation was
triggered by Mr. Khaira's continued refusal to take steps to make his wife a
co-owner of the residence, something she desired for security for herself and
her children. Mr. Khaira’s reluctance stemmed from memories of past losses
after two failed marriages. Applying the lessons from these unhappy
experiences, Mr. Khaira drafted a document entitled “Separation Agreement”
which was signed by the parties and witnessed by Mrs. Khaira’s mother on December 30,
1993. Mr. Khaira moved from the main floor of the residence to the vacant
one-bedroom apartment in the basement where he maintained his residency for
nearly 10 years until their reconciliation in 2003. Around this time, Mrs. Khaira
was finally successful in having her name added to the title to the residence
where she had lived since her marriage. By Transfer dated April
28, 2003, her husband’s parents transferred a 75 per cent share in the property
to the joint ownership of Mr. and Mrs. Khaira.
1. Whether the
Separation Agreement is a “written agreement”
[4] Counsel for the Respondent argued that the
Separation Agreement was not a written agreement within the meaning of Income
Tax Act. Mr. Khaira testified that although he has no legal training, he
had some familiarity with the format of such documents from his former
marriages. The document is not without its flaws; it does not stipulate, for
example, on which day monthly spousal support payments were to be made
(although provision has been made for child support to be payable on the 10th
of each month). I do not accept the Respondent’s submission, however, that this
omission is fatal to its legitimacy as a “written agreement”. As Mrs. Khaira
explained, as long as she knew she was getting paid, she was not concerned
about the day. There was no suggestion at the hearing that Mr. Khaira had
not paid the amounts claimed for spousal or child support. Mr. Khaira
deducted the payments from his income and with the exception of $1,000 which
seems to have been inadvertently omitted, Mrs. Khaira claimed the amounts as
income in 2000 and 2001.
[5] The Act does not specify the form
the written agreement must take or that its validity is contingent upon the
parties having had independent legal advice. The Khairas'
Separation Agreement is in writing and sets out the essentials of the agreement
between the parties: the date of the separation, the names and dates of birth
of the children of the marriage, the amounts payable each month for spousal and
child support, custodial arrangements for the children and certain events of
termination. There was no evidence to challenge the Khairas’ testimony that
they signed this agreement on December 30, 1993, nor were they shaken on cross‑examination.
For all of these reasons, I am satisfied that the Separation Agreement is a
“written agreement” within the meaning of the Act.
2. Whether the Khairas'
were living separate and apart:
[6] Both counsel cited Kelner v. R.
in which Bowman, J.T.C.C., as he then was, relied on the criteria set out in Cooper
v. Cooper (1972), 10 R.F.L. 184 (Ontario. H.C.):
...generally speaking, a finding that the parties were
living separate and apart from each other has been made where the following
circumstances were present:
(i) Spouses occupying separate bedrooms.
(ii) Absence of sexual relations.
(iii) Little, if any, communication between
spouses.
(iv) Wife performing no domestic services for
husband.
(v) Eating meals separately.
(vi) No social activities together.
[7] I am satisfied, largely on the strength of
Mrs. Khaira’s quietly credible testimony, that the evidence justifies a finding
under the Cooper criteria that Mr. and Mrs. Khaira were living
separate and apart in 2000 and 2001. Mrs. Khaira and her children lived on
the main floor of the house, space they shared for approximately half of each
year with Mr. Khaira’s parents when they returned from India. Mr. Khaira was living in a self-contained suite in the basement of
what had been the matrimonial home. He had his own sleeping quarters in the
bedroom of the apartment. Both were unchallenged on their testimony as to the
absence of sexual relations during their separation. Communication was limited
to those occasions, primarily when their children were younger, when Mr. Khaira
made arrangements to spend time with them after his working day. I accept
Mrs. Khaira’s evidence that she performed no domestic services for him:
for example, the laundry facilities were located between the main floor and the
basement apartment, equally accessible from either area. While I have no reason
to conclude that Mr. Khaira did his own laundry, I am satisfied that it was not
Mrs. Khaira’s responsibility to see to it. Mrs. Khaira had no knowledge of
whether he prepared meals in his apartment; she, however, did not make his
meals and was able to testify that there was a microwave in the apartment for
his use. She and the children took their meals together: either upstairs (with
or without the grandparents) or, when she took them out for a treat, at family
restaurants. The Khairas have few relatives in Canada other than Mr. Khaira’s parents and not a particularly large circle
of friends. Mrs. Khaira struck me as having been kept singularly in the dark
regarding how Mr. Khaira spent his time when not in her presence. What
socializing each did was done separately; Mrs. Khaira did not know where
Mr. Khaira spent his time; she herself devoted most of her free time to
her children and their activities.
[8] The Khairas had separate bank accounts
except for a small joint investment account. Mrs. Khaira deposited Mr. Khaira’s
support payments in her own chequing account. She had her income tax returns
prepared by her own tax advisor, not by her husband who prepared his own. Mr. Khaira’s
average income for the two years was approximately $95,000. Counsel for the
Respondent made much of this fact, arguing that if he really wanted to live
separate and apart, Mr. Khaira could easily have afforded to rent an apartment
in another part of Scarborough.
I do not find this argument compelling. He was able to achieve the same result
living rent-free, undisturbed by his wife and yet near his children and
parents, in a separate part of a house in which he had a financial interest.
[9] Marriages take many forms, most bearing
little resemblance to the happily‑ever-after model held out as the ideal.
Separation arrangements are no less varied, their structure depending on the
unique situation of the couple involved. The case law is clear that each case
must be judged on its own facts. It is equally clear that once the Appellant
has made out a prima facie demolishing
the Minister’s assumptions, the burden of proof shifts to the Minister. In the present
case, the Appellant presented more than enough evidence to challenge the
Minister’s assumptions; no one was called by the Crown to rebut the Khairas’
version of events. On the evidence before me, I am satisfied on a balance of
probabilities that during 2000 and 2001, Mr. and Mrs. Khaira were living
separate and apart within the meaning of the Income Tax Act.
[10] For the reasons set out above, the appeals
are allowed, with costs, and the matter is referred back to the Minister for
reconsideration and reassessment on the basis that the Appellant and his spouse
were living separate and apart pursuant to a written agreement.
Signed at Ottawa, Canada, this 5th day of August
2005.
Sheridan,
J.
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