Lome Victor Ardley v. Minister of National Revenue, [1980] CTC 2126, [1980] DTC 1106

The Chairman:—This is the appeal of Lome Victor Ardley from assessments in respect to the 1973, 1974, 1975 and 1976 taxation years by which the Minister of National Revenue disallowed amounts of $6,173, $7,670, $8,100 and $7,800 claimed by the appellant, pursuant to paragraph 60(b) of the Income Tax Act, SC 1970-71-72, c 63, as amended, for each of the above years respectively.

Submissions

The appellant submitted that the above payments were made to his estranged wife pursuant to a legally binding contract between himself and his wife and having satisfied all the requirements of paragraph 60(b) of the Act, the said amounts were properly deductible from his income for the 1973, 1974, 1975 and 1976 taxation years.

The respondent, on the other hand, made two submissions:

1. That the amounts claimed by the appellant in the pertinent taxation years had not been paid to his wife pursuant to a written agreement.

2. That the amounts paid by the appellant to his wife in excess of $500 a month were not predetermined amounts and therefore not deductible pursuant to paragraph 60(b) of the Act.

Facts

There was agreement on the fact that the appellant was married in April of 1949 and that six children issued from the marriage, and that from June 1971 to 1976 the appellant lived separately from his wife. The parties also agreed that the appellant had, in the 1973, 1974, 1975 and 1976 taxation years, paid to his wife the amounts claimed for each of those years.

In determining whether or not the amounts claimed by the appellant were paid to his wife pursuant to a written agreement, the Board had before it a handwritten agreement (Exhibit “A” of Exhibit A-2) dated August 14, 1972, included in the appellant’s statement of facts (Exhibit A-2). This document which was signed by the appellant provided that he would pay to his wife an amount of $500 a month calculated as follows: $200 for the benefit of his wife; and $100 for each child under 18 years of age if he attended school and $100 for each child under 21 years of age who attended university. Some adjustment for payments in future years was also provided for in the document (Exhibit “A” of Exhibit A-2). This document was not signed by the appellant’s wife.

Also included in the appellant’s statement of facts as Exhibit G is an affidavit signed by the appellant’s wife dated November 30, 1978 in which she acknowledges that there had been an oral agreement between herself and her husband as to the terms of a separation agreement which were set down in writing by her husband in (Exhibit “A” of Exhibit A-2—statement of Facts).

On June 14,1976, the appellant’s wife returned a cheque in the amount of $2,558.12 to the Director of Taxation, which she had received as an overpayment. In her letter she explained that she was in receipt of monthly allowance payments according to a mutual agreement as to the terms of the separation allowance which she had entered into with her husband in 1972.

The appellant was informed by Mrs Rice, Mrs Ardley’s attorney, that a formal written separation agreement between the appellant and his wife had possibly been executed prior to July of 1973. (Exhibit “F” of Exhibit A-2—Appellant’s statement of facts).

A draft of a formal separation agreement between Lome Victor Ardley and Sheila Pearl Ardley was produced as Exhibit A-3. This document was unsigned. Counsel for the appellant called as a witness Mrs Mary Jane Binks Rice, Mrs Ardley’s attorney, who testified that Mrs Ardley had come to see her in September 1972 to formalize an arrangement for separation which she and the appellant had agreed upon. She had not seen the handwritten document setting out the terms of the separation arrangement (Exhibit “A” of Exhibit A-2—appellant’s statement of facts). Mrs Rice stated that she had communicated with Mr Hacker of the firm of Goldberg, Shinder, et al, the appellant’s attorney, relative to the proposed separation agreement and recalls that there was some dispute with the appellant’s counsel as to a variation of a clause in the agreement.

Counsel for the appellant produced a letter written by Mrs Rice to Minto Rentals Management Limited (Exhibit “E” of Exhibit A-2—statement of facts) in which Mrs Rice refers to the fact that the appellant’s wife was in receipt of $500 a month from her husband pursuant to a separation agreement which the Ardleys had entered into.

Mrs Rice’s comments on the letter was that she was attempting to help Mrs Ardley to obtain a lease from Minto and that she tried to convey in her letter as legal an impression as possible. She however made the distinction between the words “entering into an agreement’’ which she used in the letter and “executing an agreement’’ which was not used.

There is evidence that in September 1973 Mrs Rice sent a statement of account to Mrs Ardley which was paid by her at the time (Exhibit “I’’ of Exhibit A-2—statement of facts).

Exhibit A-1 is a statement of account sent by the firm of Goldberg, Shinder, et al to the appellant including a charge of $500 for disbursement fees “with respect to separation agreement’’.

Finding of Facts

A review of the evidence inevitably leads to the conclusion that the appellant who was living separate from his wife had arrived at some agreement with his estranged wife to pay her a monthly allowance of $500.

The handwritten commitment to pay the monthly amount signed by the appellant, the acknowledgment by the appellant’s wife that they had mutually agreed to the said arrangement and that she had in fact received the payments, leaves no doubt as to the existence of an agreement between the appellant and his wife.

The evidence is also clear that the appellant and his wife had attempted to formalize their agreement. The appellant had retained the law firm of Goldberg, Shinder, et al, and the appellant’s wife had retained Mrs Mary Jane Binks Rice as counsel. Both the appellant and his spouse received and paid statement of accounts to their respective lawyers with respect to the work done by the two legal firms relative to the proposed separation agreement.

The problem, as I see it, is not that a written separation agreement signed by both the appellant and his wife was not produced as an exhibit, it is that the appellant has failed to establish that the proposed separation agreement was ever executed.

The evidence is that there was a considerable amount of communication by telephone and by letters between Mrs Rice’s law firm and Mr Hacker of the law firm of Goldberg, Shinder, et al and later with Mr Allard of the same firm, relative to the agreement. There is evidence that the appellant’s lawyers were unable to locate the appellant and the matter remained unsettled for a considerable period of time. The draft agreement (Exhibit A-3) was not signed. Mrs Rice testified that most of the correspondence she had with the Goldberg, Shinder, et al law firm had been returned to the appellant’s wife. She states that she had found in her files copies of the Agreement which Mrs Ardley had signed and which has been sent to the appellant’s attorneys for the appellant’s signature. She had no record of having received an executed copy of the agreement or any letter from the appellant’s lawyers to that effect.

Whether or not the clause in Mrs Rice’s agreement relative to the payment of legal fees by the husband materially affected the agreement or whether the striking out of the clause by the appellant’s counsel was or was not a counter-offer, is not germane to the issue which is simply whether or not the payments made by the appellant to his wife were made pursuant to a written agreement as required by paragraph 60(b) of the Act.

The charging of the lawyers’ fees might well be evidence that counsel rendered legal services for both the appellant and his wife in respect of the separation agreement but it does not establish that the agreement was ever executed.

Paragraph 60(b) reads as follows:

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

(b) 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;

The courts and the Board have consistently held that the written separation agreement pursuant to which alimony or maintenance payments are made to an estranged spouse, must be signed by both parties in order to fall within the provisions of paragraph 60(b).

The appellant has failed to satisfy the onus of establishing that the payments claimed as deductible in 1973, 1974, 1975 and 1976 were made pursuant to a written agreement within the meaning of paragraph 60(b).

Having so ruled, it is unnecessary for me to deal with the respondent’s second point that payments in excess of $500 were not deductible because they were not pre-determined amounts.

For these reasons the appeal is dismissed.

Appeal dismissed.