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Citation: 2004TCC772
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Date: 20041126
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Docket: 2003-2122(IT)I
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BETWEEN:
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JOHN THOMSON,
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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, John Thomson,
appeals from a reassessment of his 2000 taxation year in which
the Minister of National Revenue disallowed his claim to deduct
amounts paid to his former spouse Annette Thomson (now
Bellinghoffen) for the support of their daughter. It is agreed
that John and Annette have lived separate and apart since 1996.
It is further agreed that the $3,600.00 Annette received in 2000
was not paid pursuant to a court order. The only issue, then, is
whether this amount was paid pursuant to a "written
agreement" as contemplated by subsection 56.1(4) of the
Income Tax Act, the relevant portions of which are:
"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; ... [Emphasis added.]
[2] On March 3, 1997, John and Annette
met with the family court duty officer assisting them with
obtaining a court order setting what they had agreed to regarding
the care and support of their four-year-old daughter. The officer
provided them with a standard form Minutes of Settlement[1] in which she recorded
the terms of their agreement: that John and Annette were to have
joint custody of their daughter, her primary residence being with
Annette with reasonable access accorded to John. To this she
added another clause stating that the parties agreed "to
withdraw the request for child support at this time". These
terms formed the court order issued on March 3, 1997. Child
support was withdrawn from the Court's consideration because
on that same day, the Thomsons, on the advice of the officer, had
set out their agreement regarding child support in another
court-provided standard form document entitled "Separation
Agreement".
[3] As a newly single parent, Annette
was around this same time seeking family benefits known as
"Mother's Allowance"; under this provincial scheme,
the Mother's Allowance for which a qualifying mother is
otherwise eligible is reduced by the amount of child support she
receives. Annette was required to file with the relevant
government agency proof of the monthly payment of $275.00 she was
receiving from John; it was for this purpose that the Separation
Agreement was recommended to her by the court officer. Although
not mentioned in the Separation Agreement and not known to
Annette at the time, a qualifying mother ceases to be eligible
for Mother's Allowance upon her remarriage.
[4] All of this is relevant to a
proper understanding of the Separation Agreement, the document
that underpins the Minister's disallowance of John's
claim for a child support deduction. It is a brief document
comprising only five clauses. Blank spaces are provided for the
names of the parties, the name(s) and date(s) of birth of the
child(ren) of the marriage, the date since when the parties have
lived separate and apart, the effective date of the agreement,
and the amount to be paid and how often. It also provides a space
for the amount of spousal support to be paid, but as this was not
applicable in the Thomsons' case, this clause has a line
scribbled through it and is initialled by the parties.
[5] In accordance with the
Thomsons' verbal agreement, the court official filled in the
blanks. Mr. Thomson's name was originally misspelled as
"Thompson" but the offending "p" was
scratched out and initialled. The effective date is written in
Clause 1 as "March 28, 1997"; in Clause 2(b),
"$275", the amount of child support to be paid
"per month". Tacked on below is a standard paragraph
listing the statutory conditions terminating the payor's
obligation to pay child support. Finally, there is a space for
the signatures of the parties duly signed by John and Annette. If
this were all that was contained in the Separation Agreement, I
would have no difficulty in concluding that it satisfies the
requirement in paragraph 56.1(4)(a). Unfortunately, there
lurks in this document an additional provision which counsel for
the Respondent argued, deprives the support paid for the Thomson
daughter of its deductible status.
[6] That provision is Clause 3 of the
Separation Agreement which states: "Party A and Party B
agree that this agreement terminates when Party B ceases to
qualify for support out of public money." At the hearing,
counsel for the Respondent argued that pursuant to this clause,
the Separation Agreement terminated in January 1998 when, upon
her remarriage, "Party B", (a.k.a. Annette) ceased
to qualify for the "Mother's Allowance". Hence, by
2000, there was no "written agreement" pursuant to
which child support payments were made. From this it follows that
there can be no "support amount" within the meaning of
subsection 56.1(4) of the Income Tax Act and thus, no
deduction entitlement. I note, however, that although the
Separation Agreement formed the basis of the Respondent's
argument at the hearing, there is no mention of it in the Reply
to the Notice of Appeal. According to the assumptions in the
Reply, the Minister's reassessment was based on the Minutes
of Settlement; specifically, its lack of child support
provisions. With this, John did not take issue but argued that in
making his reassessment, the Minister looked to the wrong
document - he ought properly have looked at the Separation
Agreement. Annette's testimony (the Respondent's witness)
supports this conclusion. Having thus "demolished" the
Minister's assumption, John shifted onus that in tax cases
rests first with the Appellant to the Minister to rebut his
prima facie case[2].
[7] The requirement in the Income
Tax Act that there be a "written agreement"
pursuant to which child support has been paid is a refinement of
the taxpayer's general statutory obligation to keep
"adequate books and records" to substantiate the claim
made. As is the case with books and records, the Act does
not define "written agreement" nor does it contain any
specifications regarding its format or content. Ranked in
paragraph 56.1(4)(a) as an alternative to a "court
order", it follows that the Act requires of a
"written agreement" a certain degree of
reliability in proof of the agreement between the payor and the
recipient. Whether in any particular case records are adequate to
support the claim made by the taxpayer is a question of fact that
will depend on the evidence presented.
[8] John was self-represented and
testified at the hearing. Annette was called by the Respondent. I
found them both to be credible witnesses who gave their evidence
in a straight forward manner. I accept their evidence that they
agreed that John would pay $275.00 per month to Annette starting
on March 28, 1997 and that it was their intention to bind him to
that agreement by inserting these terms in the Separation
Agreement. I further find that these were the only terms to which
they had turned their minds and to which they put their
signatures on March 3, 1997. Their course of conduct following
the completion and signature of the Separation Agreement is
consistent with the terms of the Separation Agreement. Until
March 2004 when Annette applied for a court order to increase the
amount of child support in accordance with John's enhanced
ability to pay, John faithfully paid $275.00 monthly. Throughout
this time and as agreed, John deducted from his income and
Annette included as income the child support payments. Both
parties understood that the 2004 court order would result in the
child support no longer being deductible in John's hands and
taxable in Annette's. Finally, Annette testified that John
paid support to her by cheque. While cheques in themselves have
been held not to be sufficient to constitute a "written
agreement" within the meaning of subsection 56.1(4)[3], they may, in
conjunction with other writing between the parties, lead to the
conclusion that child support was paid pursuant to a
"written agreement". The present case is exactly such a
circumstance.
[9] For all of these reasons, I am
satisfied that for the purposes of subsection 56.1(4), a written
agreement can be inferred from the words the Thomsons caused to
be written in the blanks of the Separation Agreement setting out
what had been agreed between them and signed by them on March 3,
1997. In view of this finding, it is not necessary to consider
whether the John's cheques would be sufficient in themselves
for this purpose but, in these particular circumstances, I am
inclined to think they were. They are certainly supportive of the
existence of an agreement and the terms upon which it was based.
The appeal is allowed, with costs, and the reassessment is
referred back to the Minister on the basis that there was a
"written agreement" pursuant to which child support in
the amount of $3,600.00 was paid.
[10] If I am wrong in the above conclusion,
and I ought to have taken into account the standard form
provisions contained in the Separation Agreement, then I am
further satisfied that on a proper interpretation of that
agreement, Clause 3 did not operate so as to trigger the
termination of the Separation Agreement when Annette remarried in
January 1998. When the Thomsons signed the Separation Agreement
on March 3, 1997, their daughter was only four years old and as
such, likely to require John's financial support for several
more years. It is unreasonable to conclude that in such
circumstances, her parents would have intended to make John's
child support obligations contingent on Annette's maintaining
her eligibility for government aid. It is equally unlikely, and
certainly contrary to good public policy, for the government
drafter of the Separation Agreement to have intended such an
outcome. Clause 2(b) deals exhaustively with child support
obligations, including the statutory events of termination.
Clause 3 appears to be directed to the completely unrelated topic
of a custodial mother's entitlement to such programs as the
Mother's Allowance.
[11] I do not accept counsel for the
Respondent's argument that a strict interpretation approach
ought to be taken in this case. The problem lies with the fact
that the Separation Agreement is a poorly drafted, standard form
document press-ganged into service for a multitude of specialized
tasks, none of which it does well. In this sorry state, it is
presented to family law litigants who are often self-represented,
under stress and without the expertise to determine its
implications[4].
Such vulnerability leads to reliance on officials who, however
well meaning, cannot be expected to act in the same fashion as
independent counsel. It was in this context that John and Annette
used the Separation Agreement to set out the details of their
agreement regarding child support. In these circumstances, its
terms must be construed in manner that is consistent with their
intentions. For these reasons, the appeal is allowed on the same
basis set out above.
Signed at Ottawa, Canada, this 26th day of November, 2004.
Sheridan, J.
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