Date: 20011017
Docket: A-350-00
Neutral citation: 2001 FCA 310
CORAM: DESJARDINS J.A.
DÉCARYJ.A.
BETWEEN:
CHARLES GAGNÉ
Applicant
and
HER MAJESTY THE QUEEN
(Revenue Canada - Taxation)
and
ATTORNEY GENERAL OF CANADA
Respondents
Hearing held at Ottawa, Ontario, on October 17, 2001.
Judgment delivered from the bench at Ottawa, Ontario, on October 17, 2001.
REASONS FOR JUDGMENT OF THE COURT OF: DÉCARY J.A.
Date: 20011017
Docket: A-350-00
Neutral citation: 2001 FCA 310
CORAM: DESJARDINS J.A.
NOËLJ.A.
BETWEEN:
CHARLES GAGNÉ
Applicant
and
HER MAJESTY THE QUEEN
(Revenue Canada - Taxation)
and
ATTORNEY GENERAL OF CANADA
Respondents
REASONS FOR JUDGMENT OF THE COURT
(Delivered from the Bench at Ottawa, Ontario,
on October 17, 2001.)
DÉCARY J.A.
[1] We are of the opinion that this application for judicial review of a decision by Judge Lamarre ([2000] T.C.J. No. 207) of the Tax Court of Canada must be allowed.
[2] In computing his income for the 1994 and 1995 taxation years, the applicant deducted $9,600 and $6,400, respectively, as support paid to his former spouse. The Minister of National Revenue (the Minister) disallowed the deductions on the ground that the amounts in question had not been paid "pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written agreement, as alimony..." within the meaning of paragraph 60(b) of the Income Tax Act (the Act).
[3] On June 22, 1993, the applicant and his former spouse signed an agreement concerning interim relief in divorce proceedings instituted in the Superior Court of Quebec, district of Hull. That agreement included the following provisions in paragraphs 15, 16 and 17:
15. The applicant shall pay the respondent, for the children, the sum of $800 a month, payable on the first of each month, for the months of July and August 1993;
| 16. The support amount shall be reviewed for September 1, 1993, the date of the sale of the family residence; |
| 17. From July 1 to September 1, 1993 (sale of the house), the parties shall contribute to the payment of their common debts as follows: |
| (a) the applicant shall pay |
| mortgage |
$ 422.00 |
| school and municipal taxes |
$ 133.00 |
| home insurance |
$ 63.66 |
| 1/2 Laurentian Bank |
$ 243.00 |
| 1/2 Estate |
$ 202.85 |
-------------------
$1,064.51
(b) the respondent shall pay
mortgage $ 680.00 1/2 Laurentian Bank $ 243.00
1/2 Estate $ 202.85
--------------- $1,167.58
(Applicant's Record, pp. 69 to 72)
[4] On July 7, 1993, the agreement was ratified by a judgment concerning interim relief signed by Mr. Justice Jean R. Dagenais.
[5] The sale of the family residence did not take place on September 1, 1993. While waiting for a sale, the parties continued to comply with the obligations provided in the agreement they had signed on June 22, 1993, the applicant, in particular, by paying the monthly support of $800 set out in paragraph 15 and his former spouse, by not exercising the right she was given in paragraph 18, to request that support be reviewed.
[6] On July 19, 1995, once the sale had been finalized, the parties reached a "final mediation agreement" in which the amount of the support was increased to $1,050 a month. Paragraph 44 of the final agreement provided that [TRANSLATION] "the spouses grant each other full and final release from any action for support..." (Applicant's Record, p. 93).
[7] It is admitted that the applicant paid the monthly support of $800 at all times between June 22, 1993, and July 19, 1995, and that he started paying the monthly support of $1,050 as of July 19, 1995.
[8] The final agreement was ratified by a divorce judgment delivered on August 25, 1995.
[9] By concluding, at paragraph 13 of her reasons, that the agreement "did not provide that the appellant was required to pay support of $800 a month until the sale of the family residence," Judge Lamarre misunderstood the real intention of the parties, which is apparent from the agreement as a whole.
[10] It is settled law, in Quebec civil law, that if the common intention of the parties in an agreement is doubtful, the judge [TRANSLATION] "must try to find what the parties truly intended by their agreement" (Jean-Louis Baudouin, Les Obligations, 4th Ed., 1993, Les Éditions Yvon Blais, p. 255). The judge must [TRANSLATION] "place greater weight on the real intention of the contracting parties than on the apparent intention, objectively manifested by the formal expression" (p. 255), and he must ascertain the effect that the parties intended the contract to have (p. 256). To do so, the judge must have a overall picture of the parties' intention, which calls for an analysis of all of the clauses in the contract in relation to one another (p. 258). If there is any remaining doubt as to the parties' real intention, the judge may [TRANSLATION] "examine the manner in which the parties conducted themselves in relation to the contract, in their negotiations, and most importantly their attitude after entering into the contract, that is, the manner in which the parties have interpreted it in the past..." (pp. 258-259).
[11] In her reasons, the judge quoted only paragraphs 15, 16 and 17 of the agreement. There are other relevant paragraphs, however, including the following:
[TRANSLATION]
6. The respondent will have possession of a 1998 Pontiac 6000 currently registered under the applicant's name. The respondent undertakes not to sell the said vehicle before an agreement is entered into with respect to division;
...
13. The parties agree to accept an offer of $174,000 from Richard Latulippe for the purchase of R.R.1, Wright Road, Chelsea, if such an offer is made before August 15, 1993. The date of possession shall be September 1, 1993;
If, before the expiry of the real estate agent's mandate, an offer is made for an amount greater than $174,000 after payment of all real estate agent's commissions and related taxes, Richard Latulippe will be entitled to make an offer equal to or greater than that amount (after deduction of commissions and taxes), and the parties agree to accept that offer from Mr. Latulippe in that event;
14. Out of the proceeds of the sale of the house, the parties authorize the executing notary to pay the following debts:
- 1st mortgage from Caisse Pop. St-Joseph approx. $96,000.00
- 2d mortgage from Caisse Pop. St-Joseph approx. $14,000...
19. The parties agree to meet for the purpose of dividing the furniture.
[12] On their face, paragraphs 15 and 16 could have implied that the obligation to pay the support was an extinctive-term obligation: the obligation arose at the time of the agreement and ended on September 1, 1993, "the date of the sale of the family residence."
[13] If, however, we read the agreement as a whole, we are obliged to recognize that the purpose of the agreement, in monetary terms, was to establish the respective rights and obligations of the parties on the basis of the proceeds of the future and uncertain sale of the family residence. The obligation to pay the support was therefore subject to a resolutory condition: it took effect once the agreement was signed and would cease to have effect when "an event future and uncertain" (article 1079 C.C.L.C.) took place, specifically, the sale of the family residence. Moreover, the exercise of the right to request a review of the support was made subject to a suspensive condition: that right arose only at the time of the sale in question.
[14] Not only was the stated date of the sale (September 1, 1993) a secondary element of the agreement but in June 1993, that date could not be determined with certainty. The parties could very well have wanted the sale to take place on September 1, 1993, but the actual words of clause 13 state that on the date of the agreement, Mr. Latulippe had not yet made an offer to purchase; more than that, Mr. Latulippe was given until August 15, 1993, to submit an offer. On June 22, 1993, the sale, and therefore the sale date, was indeed future and uncertain.
[15] It is obvious, in the circumstances, that all of the financial arrangements stipulated in the agreement were premised on the future and uncertain sale of the family residence and not on a predetermined date. The agreement was binding on the parties as long as the condition stipulated did not materialize. This is how the parties themselves understood and performed the agreement.
[16] The circumstances in this case have nothing to do with the oral or implied agreements, or even to the purely voluntary payments, that Parliament, according to Mr. Justice Strayer of the Trial Division in Hodson v. The Queen, 87 D.T.C. 5113, at page 5114, wanted to avoid. This Court, affirming the decision of Strayer J. at 88 D.T.C. 6001, stated, at page 6003:
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.
(Our Emphasis)
That is not the situation in this case. On the contrary, the support in dispute was paid pursuant to an initial written agreement, which was in fact ratified by a court order, until a second agreement replacing the first one, and also ratified by court order, was entered into.
[17] The application for judicial review will be allowed with costs in this Court and in the Tax Court of Canada, the decision of the Tax Court of Canada set aside, and the matter referred back to that Court for reconsideration on the basis that the taxpayer's appeal must be allowed and the assessment referred back to the Minister for reconsideration and reassessment on the basis of these reasons.
"Robert Décary"
J.A.
Certified true translation
Sophie Debbané, LL.B.
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
COURT FILE NO.: A-350-00
STYLE OF CAUSE: CHARLES GAGNÉ v. HER MAJESTY THE QUEEN
ET AL.
PLACE OF HEARING: OTTAWA, ONTARIO
DATE OF HEARING: October 17, 2001
REASONS FOR JUDGMENT OF THE COURT: DESJARDINS J.A
DÉCARY J.A.
NOËL J.A.
DELIVERED FROM THE BENCH BY DÉCARY J.A.
APPEARANCES:
JEAN LAFLAMME FOR THE APPLICANT
PAUL PLOURDE Q.C. FOR THE RESPONDENTS
JADE BOUCHER.
SOLICITORS OF RECORD:
LAFLAMME COSSETTE FOR THE APPLICANT
HULL, QUEBEC
MORRIS ROSENBERG
DEPUTY ATTORNEY GENERAL OF CANADA FOR THE RESPONDENTS
OTTAWA, ONTARIO