Eddie D Hardy v. Minister of National Revenue, [1978] CTC 3120, [1978] DTC 1802

Guy Tremblay [TRANSLATION]:—This case was heard on March 23, 1978 in Quebec City, Quebec.

1. Point at Issue

The question here is to determine whether the appellant is entitled to deduct for the 1974 and 1975 taxation years the sums of $5,020 and $6,820 paid as alimony to his separated wife in accordance with a written agreement that was not signed by the interested parties.

2. Burden of Proof

The burden is on the appellant to show that the respondent’s assessments are incorrect. This burden of proof derives not from one particular section of the Income Tax Act, but from a number of judicial decisions, including the judgment delivered by the Supreme Court of Canada in R W S Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

3. Facts

3.1 In March 1974, the appellant and his wife separated by mutual agreement. A document was then prepared by the wife’s lawyer relative to inter alia alimony payments, and was to be signed by the parties.

3.2 The appellant refused to sign the agreement so that, as he himself states in his appeal and has repeated in his testimony, “it should not be prejudicial when the divorce is finalized’’.

3.3 The appellant however always complied with this written, unsigned agreement. He paid $5,020 to his wife in 1974, and $6,820 in 1975.

4. Act, Case Law and Comments

4.1 The legislation authorizing the deduction of alimony paid by the spouse consists of paragraph 60(b) of the new Act which reads as follows:

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, pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written agreement, as alimony or other allowance payable on a periodic basis for the maintenance of the recipient thereof, children of the marriage, or both the recipient and children of the marriage if he was living apart from, and was separated pursuant to a divorce, judicial separation or written separation agreement from, his spouse or former spouse to whom he was required to make the payment at the time the payment was made and throughout the remainder of the year.

4.2 According to the appellant, the Act refers to a “written agreement’’. “It does not have to be signed” he says,, “it only has to be written”.

The Board is of the opinion that a written agreement is not binding unless it is signed by the two parties. Otherwise, the written contract only serves as a record.

If persons have participated in the written contract, they may serve as witnesses to give evidence of a verbal contract if there was a verbal agreement but that is all. Moreover, a verbal contract is not a written contract and the Act specifies a written contract. The Income Tax Act, being a public policy statute, should be strictly interpreted, that is, according to the letter of the law.

4.3 On many occasions, the courts have made decisions on this subject. The respondent’s legal representative cited several cases.

In James Beatty v MNR, 13 Tax ABC 285; 55 DTC 444, the Chairman of the Tax Appeal Board disallowed the sums paid as alimony precisely because the appellant refused to sign the written agreement prepared by the lawyers.

In Keith Norman Fryer v MNR, 31 Tax ABC 143; 63 DTC 176, it was held that a letter written by the appellant did not constitute a written agreement signed by the two parties.

In No 345 v MNR, 15 Tax ABC 236; 56 DTC 327, it was held that an exchange of correspondence between the lawyers of the husband and wife to settle the sum of the alimony did not constitute a written agreement. According to the Court, the signatures of the husband and wife should appear on the document.

In Edward Kostiner v MNR, 32 Tax ABC 124; 63 DTC 478, it was held that correspondence between the husband and wife and between their lawyers did not constitute a valid written agreement.

In a recent judgment of February 13, 1978, the Tax Review Board Ghislaine Guèvremont and Roméo Rivet v MNR, [1978] CTC 2949; 78 DTC 1678, it was held that an agreement signed by the lawyer of the appellant’s spouse, to obtain judgment, but not authorized by her, could not constitute a valid written agreement within the meaning of paragraph 60(b).

Finally, the Court of Appeal of Quebec, District of Montreal, No 09-001401-769, in a recent judgment of March 13, 1978 (Albert Charlier v Deputy Minister of Revenue Quebec) affirming a judgment of the Provincial. Court, refused to recognize as valid for 1971 a written agreement signed December 3, 1965 relative to 1966, stipulating a payment of $3,000 per year. This agreement provided for a method to be used by the parties in order to revise the amount of the alimony and to settle the amount each year on December 1 preceding each subsequent year. As there was no evidence given that this revision was made for 1971, the sum of $5,930 paid in 1971 was disallowed as a deduction in the husband’s income. tax calculation. The Court also made the following comment:

While as a general rule, a tax statute should be interpreted in favour of the taxpayer in the event of ambiguity, the fact remains that when the wording of the Act is clear, it must be applied.

The Court of Appeal of Quebec, in making this judgment, relied on section 13 of the Provincial Income Tax Act, 1964 RSQ c 69) which refers to paragraph 11 (1)(l) of the old federal Act. As we know, paragraph 11 (1)(l) of the old Act is similar to paragraph 60(b) of the new Act cited at length above.

Because of the interpretation which must be given to the legislation governing this case, the appeal cannot be allowed.

5. Conclusion

The appeal is dismissed in accordance with the above reasons for judgment.

Appeal dismissed.