Dale Risula v. Her Majesty the Queen, [1996] 3 CTC 2125

Christie J.T.C.C.: — This appeal is governed by the General Procedure prescribed by section 18 and following sections of the Tax Court of Canada Act.

The question to be determined is whether in computing his income for 1993 the appellant is entitled to deduct $4,000.00 under paragraph 60(b) of the Income Tax Act (the “Act”). It provides:

60. There may be deducted in computing a taxpayer’s income for a taxation year such of the following amounts as are applicable:

(b) Alimony payments — an amount paid by the taxpayer in the year as alimony or other allowance payable on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and the children, if the taxpayer, because of the breakdown of the taxpayer’s marriage, was living separate and apart from the spouse or former spouse to whom the taxpayer was required to make the payment at the time the payment was made and throughout the remainder of the year and the amount was paid under a decree, order or judgment of a competent tribunal or under a written agreement;

This question can be further refined by focusing on the issue whether the appellant has complied with the words “under a written agreement” in that paragraph. It is conceded that the payments were not made “under a decree, order or judgment of a competent tribunal”. It is also acknowledged that the appellant met the other requirements of paragraph 60(b) relating to living separate and apart, etc.

The appellant and his wife separated on June 1, 1993. They sub- sequently divorced. There were two children of the marriage.

A mediator, Mr. Fred Curtis, was retained with a view to resolving their differences and attempting to effect a reconciliation. The first of some four or five meetings was held in the early part of July 1993. At that meeting it was agreed that the appellant would pay his wife $800.00 per month by way of maintenance for herself and the children. Payments commenced on August 1, 1993 and were made on a regular basis until the end of the year. It was the appellant’s understanding that Curtis “... would formulate an agreement of separation in writing which he would forward to us to be signed once it was completed, once it was written up”. The appellant expected this to be done within two or two and one-half weeks. That did not happen although the appellant understood from Curtis that the agreement was prepared and ready for signature.

The appellant regarded himself bound by the agreement and he made payments in accordance with this understanding of it. This exchange took place between him and his counsel at the hearing:

Q. Why didn’t you sign an agreement?

A. Mr. Curtis phoned me, probably two or two and a half weeks following our initial meeting, and he suggested that because the efforts that we had also agreed upon at that meeting to work towards reconciliation were progressing so smoothly and so well and he was so optimistic about it, he asked whether I thought or whether I agreed with him that sending out such an agreement might be contrary to the progress of our reconciliation efforts.

Q. So for that reason you didn’t put it to paper?

A. That’s correct.

In cross-examination the appellant said he never saw the agreement between him and his former wife.

An agreement in writing not having been entered into between the appellant and his former wife at a time relevant to this appeal, the appeal cannot succeed. The fact that the appellant may well have had a bona fide belief that an agreement had been reduced to writing by Curtis and that he, the appellant, was bound by it, does not alter that conclusion.

In Hodson v. Minister of National Revenue (sub noms. Hodson v. R.; Hodson v. The Queen), [1988] 1 C.T.C. 2, 88 D.T.C. 6001 (F.C.A.) there was, as in the case at hand, no agreement in writing between the appellant and his wife. In reassessing Hodson in respect of 1981 and 1982 the Minister of National Revenue disallowed claimed deductions of $12,000.00 and $12,800.00 respectively paid by the appellant to his wife as separation allowances. An appeal by Hodson to this Court was dismissed: [1985] 2 C.T.C. 2326, 85 D.T.C. 615. An appeal to the Federal Court, Trial Division was also dismissed: [1987] 1 C.T.C. 219, 87 D.T.C. 5113. The further appeal to the Federal Court of Appeal met the same fate. Speaking for the Court of Appeal Mr. Justice Heald said at pages 4-5 (D.T.C. 6002-3):

The appellant submits that the rationale for the exception provided by paragraph 60(b) which, in effect, allows income splitting between former spouses or separated persons, is to distribute the tax burden between them, thus allowing them greater financial resources than when living together which, in turn, provides partial compensation for the lost economics of maintaining a single household. The appellant then proceeds to quote section 11 of the Interpretation Act which deems every enactment to be remedial and requires “... a fair, large and liberal construction and interpretation as best ensures the attainment of its objects.” Based on the purpose for paragraph 60(b) supra, and relying on section 11 supra, the appellant maintains that the interpretation of the paragraph advanced by the Minister in this case is in definite conflict with the purpose of the legislation. Accordingly, in his view, the Minister’s interpretation should not be allowed to prevail.

I do not think that the approach to interpretation suggested by the appellant accords entirely with the modern approach to statutory construction. While the purpose of the legislation is a factor to be considered, it is only one of several which need to be taken into account. Dr. Driedger in the Second Edition of his work on the Construction of Statutes states the modern principle to be applied, in the following concise terms:

Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament. ... Earlier expressions, though in different form, are to the same effect: Lord Atkinson in Victoria (City) v. Bishop of Vancouver Island ([1921] A.C. 384 at page 387) put it this way:

In the construction of statutes their words must be interpreted in their ordinary grammatical sense, unless there be something in the context, or in the object of the statute in which they occur, or in the circumstances with reference to which they are used, to show that they were used in a special sense different from their ordinary grammatical sense.

Applying that approach to the paragraph in question, I conclude that the words employed by Parliament in paragraph 60(b) must be interpreted “...in their ordinary grammatical sense.” I am unable to ascertain anything in the context or purpose of the statute or the circumstances of use which would justify an interpretation different from that resulting from a literal interpretation. The language used is clear and unequivocal. In order for the alimony payments to be deductible, there must be either a Court order or written agreement which requires such payment.

This approach to the interpretation of paragraph 60(b)has been followed in a number of decisions of the Tax Review Board and the Tax Court of Canada as well as by the Trial Division of this Court. I am not persuaded that this approach was wrong or should be altered. As pointed out by the Trial Judge, spouses who live together are not allowed to split their income thereby reducing the total tax bill of the family. Paragraph 60(b) provides an exception to that general rule and confers upon separated spouses who come within its terms and conditions certain tax advantages. Parliament has spoken in clear and unmistakable terms. Had Parliament wished to extend the benefit conferred by paragraph 60(b) on separated spouses who, as in this case, do not have either a Court order or a written agreement, it would have said so. The rationale for not including separated spouses involved in payments made and received pursuant to a verbal understanding is readily apparent. Such a loose and indefinite structure might well open the door to colourable and fraudulent arrangements and schemes for tax avoidance. I hasten to add that there is no suggestion in the case at bar of any such fraudulent or colourable arrangement. The Minister agrees that, in the case at bar, the appellant has made the alimony payments to his spouse in good faith. Nevertheless, such a possible scenario in other cases commends itself to me as the rationale for the carefully worded restrictions set out in the paragraph. If the words used by Parliament create hardships, as suggested by the appellant, it is Parliament, and not the Court, that has the power to redress those hardships.

The appeal is dismissed.

Appeal dismissed.