Date: 19971113
Docket: 97-447-IT-I
BETWEEN:
KENNETH JAMES HARRIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
McArthur, J.T.C.C.
[1] Judge Mogan of this Court heard the evidence of the case
under appeal and put the following on record:
[...] over the lunch hour break I met with Counsel in Chambers
because I realized that I had heard in this Court and in this
city an appeal by the Appellant’s wife. And her appeal, as
I recall, related to the years 1989 and 1990. And at that time
she represented herself and I believe was the only witness to
testify. And I allowed her appeal and held that the amounts were
capital. And I think I recognized her in Court this morning.
And so I put to Counsel I thought I had a conflict because of
the earlier decision I had given in Mrs. Harris’s
favour on her uncontradicted evidence. And now I am faced with
basically construing the same document on the basis of
conflicting evidence.
And so I asked Counsel to consider the matter and I am now
reconvening the Court to hear what Counsel have decided.
Mr. Tausendfreund?
MR. TAUSENDREUND: [...] I reviewed the matter with my client
and my instructions are that my client, with the expedition in
mind, the cost of the process in mind, would prefer to have the
matter dealt with by way of a transcription of the evidence to be
reviewed by another judge, who would then hear oral argument by
both Counsel based on the transcribed evidence.
THE CROWN: Your Honour, the Respondents will agree to that. It
is in the best interests of justice.
[2] After reading the transcript of the evidence, I heard the
arguments in Belleville, Ontario, on
October 10, 1997.
[3] The issue is whether payments of $24,000 made by the
Appellant to his former spouse in 1991 were made pursuant to a
decree, order or judgment of a competent tribunal or pursuant to
a written Agreement. The question narrows down to whether the
payments were on account of capital or were they on account of
maintenance and support.
[4] The facts include the following:
[5] The Appellant and his former spouse were married on
June 13, 1970. They have three children. They entered
into a written Separation Agreement, dated October 1, 1989. This
Agreement provided in part:
Periodic Financial Provision
Commencing on the date of this Agreement, the husband will pay
to the wife:
(a) for the support and maintenance of the wife the sum of
$2,500 each month in advance on the first day of each month
commencing October 1, 1989 and continuing until
September 1, 1991 and thereafter the sum of $2,000 per
month commencing October 1, 1991 and continuing until
March 1, 1992 provided that if,
(i) the wife remarries or cohabits;
(ii) the wife dies; or
(iii) the husband dies;
the support payable for the wife shall be reduced by the sum
of $500 per month during the term for which it is payable
herein.
Variation
The spouses intend the provisions contained in this Agreement
to be final in all respects with respect to inter-spousal
support which shall not be subject to variation.
Agreement to Survive Divorce
If at any future time the parties are divorced, the terms of
this Agreement will survive and continue in force. The terms of
this Agreement shall not be incorporated into a Divorce
Judgment.
The parties were divorced by Divorce Judgment dated
December 17, 1989. This Divorce Judgment did not
include any reference to spousal support.
[6] The Respondent disallowed the Appellant’s deduction
of support payments made pursuant to the Separation Agreement for
the years 1989 and 1990. The Appellant appealed this decision,
which was settled in his favour by Consent Judgement dated
December 9, 1992.
[7] Judge Mogan found on appeal by the Appellant’s wife
that the amounts were capital payments.
[8] Now this appeal deals with contradictory evidence from
both parties.
Appellant's Position
[9] The language in Section 9 of the Separation Agreement is
clear and unambiguous. As such, it alone can be looked at to
ascertain the intent of the parties.[1]
[10] In the absence of ambiguity in the document, it is an
error for the trial Judge to resort to parol evidence to
interpret the document.[2]
[11] Even where parol evidence would otherwise be admissible,
it is not admissible to vary or modify the terms of the
contract.[3]
[12] Res judicata operates by the application of two
doctrines of estoppel developed in the case law.[4]
Respondent’s Position
[13] Dealing firstly with the argument of res judicata,
Counsel referred the Court three cases: Stickel v. The
Minister of National Revenue, 72 DTC 6178;
Taylor v. The Queen, 95 DTC 591, T.C.C.;
Harvey v. The Queen, 94 DTC 1910,
T.C.C.
[14] Secondly, Counsel submitted that the Court must look at
the circumstances leading up to the making of an Agreement in
order to interpret it. The Minister was not a party to the
Agreement between the Harris’ and is therefore entitled to
look at the evidence leading up to the Agreement to determine
what this $2,500 and later $2,000 is for.
[15] Counsel for the Appellant objected to the admissibility
of a letter of June 14, 1989. I admitted it with the
comment that the weight given to this evidence would be decided
upon the writing of the judgment.
Analysis
[16] I accept the Respondent’s position with respect to
the question of res judicata. I agree with the
reasoning of Judge Bowman in Harvey v. The
Queen, 94 DTC 1910, at page 1913 where he
stated:
It would throw the administration of taxation into chaos if
the Minister were bound by every private deal he made, whether in
accordance with the law or not.
[17] The second issue is more difficult. The Appellant submits
that there is no ambiguity in paragraph 9 of the Separation
Agreement and because the wording is clear, that is the end of
the matter with respect to extrinsic evidence or parol evidence.
I agree the Respondent’s submissions that in income tax
cases the parol evidence rule does not apply because the
Respondent was not a party to the Separation Agreement.[5]
[18] To challenge the clear and unambiguous language in
paragraph 9 of the Separation Agreement, it is incumbent on
the Respondent to provide the Court with a sound evidentiary
basis. The Court must not be in a position to speculate, for
instance, whether the evidence of Mrs. Harris is more
credible that the evidence of the Appellant.[6]
[19] The paragraph I am asked to construe clearly states that
“the husband will pay to the wife for the support and
maintenance of the wife ...”. Mrs. Harris was
represented by Counsel before signing this Agreement. Her Counsel
did not testify. The letter of June 14, 1989 was
entered into evidence without the evidence from the author or the
Appellant’s Solicitor to whom it was directed. The Court
was not made privy to the bargaining between the parties prior to
the signing of the Agreement. The Appellant explained that the
payments continued even upon the death of his former wife because
he had no contact with his children and they would need further
financial support in the event of their mother’s death. The
Appellant’s evidence was as credible as that of
Mrs. Harris.
[20] I quote Judge Sarchuck with approval in
Privitera supra, at pages 1126 and 1127 where
he stated:
[...] attempts to impugn or repudiate the terms of an
agreement prepared by professional advisers and signed by the
taxpayer must be supported by evidence which very strongly
supports the assertions being made. In Pallan, Christie,
A.C.J.T.C. made the following comments at page 1107:
It must be understood that if taxpayers create a documented
record of things said and done by them, or by them in concert
with others, to achieve a commercial purpose and then seek to
repudiate those things with evidence of allegations of conduct
that is morally blameworthy in order to avoid an unanticipated
assessment to tax, they face a formidable task. And that task
will not be accomplished, in the absence of some special
circumstance, an example of which does not occur to me, by their
oral testimony alone. That evidence must be bolstered by some
other evidence that has significant persuasive force of its
own.
[21] In McKimmon supra, the Federal Court of
Appeal set out at page 6090 some considerations to be taken
into account in determining if the payments are periodic support
payments or capital payments. I apply those to the present
case:
1. The length of the periods at which the payments are made.
Amounts which are paid weekly or monthly are fairly easily
characterized as allowances for maintenance. (The Appellant made
monthly payments)
2. The amount of the payments in relation to the income and
living standards of both payer and recipient. Where a payment
represents a very substantial portion of a taxpayer’s
income or even exceeds it, it is difficult to view it as being an
allowance for maintenance.
[22] The Appellant is a successful dentist. He indicated that
the amount of the division of the assets between the parties and
they were substantial. Mrs. Harris was to receive and did
receive the matrimonial home at $220,000, its contents appraised
at $15,000 to $16,000, a vehicle which was debt free and a
brokerage account of about $88,000. She kept her own RRSP account
of $100,000 and received a rollover from Dr. Harris of
$100,000. She also kept all of her Canada Savings Bonds. The
Appellant’s income in 1989 was $484,000 and $359,000 in
1990.
3. Whether the payments are to bear interest prior to their
due date. (There was no reference to interest.)
4. Whether the amounts envisaged can be paid by anticipation
at the option of the payer or can be accelerated as a penalty at
the option of the recipient in the event of default. (This does
not apply.)
5. Whether the payments allow a significant degree of capital
accumulation by the recipient.
[23] There is no evidence to indicate that Mrs. Harris
was able to accumulate capital.
6. Whether the payments are stipulated to continue for an
indefinite period or whether they are for a fixed term.
[24] The Appellant stated the reason for the fixed term was
that his wife was a qualified registered nurse but had not worked
for a substantial portion of their marriage, and that this amount
was meant to address her ability to rehabilitate herself
professionally.
7. Whether the agreed payments can be assigned and whether the
obligation to pay survives the lifetime of either the payer or
the recipient.
[25] The payments could not be assigned. The Appellant
indicated that he and the children had become estranged and that
in the event of his wife’s death, the payments were meant
to address that contingent financial need.
8. Whether the payments purport to release the payer from any
future obligations to pay maintenance. (This does not apply to
the present case.)
[26] I am satisfied that the payments are consistent with the
characterization of support payments.
[27] I have great difficulty in accepting an interpretation of
the wording which is contrary to its plain meaning. There appears
to have been hard bargaining between Counsel for the parties
prior to the execution of the agreement. Mrs. Harris agreed
to the wording of paragraph 9 and now repudiates the terms
to avoid a tax assessment. To accomplish this task, something
more than her oral testimony and a letter that is hearsay is
required. More significant evidence is required.
[28] The appeals are allowed, with costs, and returned to the
Minister of National Revenue for reconsideration and
reassessment.
“ C.H. McArthur ”
J.T.C.C.
Email this Content