BETWEEN:
and
____________________________________________________________________
Application determined by written submissions
By: The Honourable Justice M.A. Mogan
Participants:
____________________________________________________________________
ORDER
Upon application by the Appellant for an Order fixing the costs awarded the Appellant on a solicitor/client scale from June 5, 2006, pursuant to Rule 147(7) of the Tax Court of Canada Rules (General Procedure);
And upon reviewing the written submissions of the parties;
It is ordered that the application is dismissed, without costs.
Signed at Ottawa, Canada, this 6th day of March, 2007.
BETWEEN:
JOHN KRPAN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
[1] The Appellant has applied to the Court under Rule 147(7) asking that directions be given to the taxing officer to increase the costs payable to the Appellant to amounts greater than the amounts provided in Schedule II, Tariff B. In this application, submissions have been received in writing from counsel for both the Appellant and the Respondent.
[2] The appeal came on for hearing at Torontoon June 12 and 13, 2006. The taxation years under appeal were 1999, 2000 and 2001. The principal issuewas whether periodic payments of $4,000 per month paid by the Appellant to his wife pursuant to a court order after they had separated were deductible as spousal support or not deductible as child support. The evidence of four witnesses and the arguments of counsel consumed the full two days. At the conclusion of the hearing, I reserved judgment.
[3] On November 1, 2006, I delivered judgment allowing the appeals of Mr. Krpan for all three years, with costs. In his written submission, counsel for the Appellant summarized his "Relief Requested" as follows:
The Appellant requests the Court to fix the quantum of costs to be paid to the successful Appellant. Alternatively, the Appellant requests the Court to give directions to the Assessment Officer to assess costs, on a solicitor/client scale, for the work undertaken by the Appellant's counsel from June 6, 2006 to the conclusion of the appeal.
The Appellant asks for costs on a solicitor/client scale from June 6, 2006 because, on June 5, 2006, counsel for the Appellant faxed a letter to counsel for the Respondent offering to pay the sum of $25,000 "to resolve all issues on the appeal".
[4] According to the written submission of the Appellant's counsel, the approximate tax consequences to Mr. Krpan of the three assessments under appeal were:
1999 $24,500
2000 24,500
2001 16,250
The above amounts do not include any interest or penalty that may have been levied in those assessments. Because the Appellant was totally successful in his appeal, (i) he is permitted to deduct the $4,000 per month paid to his wife, plus an additional $500 per month paid to lease a car for her use in the first two years; (ii) he has a total tax saving of approximately $65,250 for the three years under appeal; and (iii) he has the $25,000 he would have otherwise paid to settle the case.
[5] Counsel for the Appellant argues in his written submission that the financial result achieved by his client in Court far exceeded the client's settlement offer. That argument is well founded but it does not go to the heart of the application under Rule 147(7). Set out below is the entire letter offering settlement which the Appellant's counsel sent to the Respondent's counsel on June 5, 2006, one week before the hearing was to begin.
My client wishes to make a formal offer of settlement to your client.
My client offers the all inclusive sum of $25,000.00 to resolve all issues in the appeal pending for June 12, 2006. The funds would be paid to you, in trust. Upon receipt of the settlement funds, we would require a release in a form mutually agreeable to both counsel prior to the release of the funds to the CRA.
This offer will remain open until 5 minutes following the commencement of the appeal, after which this offer is automatically revoked.
This offer is made with prejudice and will be referenced, if applicable, in any argument on the issue of costs at the end of the appeal.
[6] Although the above letter speaks of offering a sum of money "to resolve all issues in the appeal", payment and receipt of the $25,000 could have terminated litigation with respect to the three years under appeal but it would not have resolved the basic issue for subsequent years. The basic issuewas whether the payments of $4,000 per month under paragraph 8 of the court order were spousal support or child support. Even if Revenue Canadahad accepted the $25,000 and terminated the litigation for 1999, 2000 and 2001, the Minister of National Revenue would have disallowed the Appellant's deduction of the $4,000 per month in 2002 and the Appellant would have been back in court for 2002 and subsequent years.
[7] In my opinion, the settlement offer as expressed in the letter of June 5, 2006 was not the kind of offer which any responsible officer of Revenue Canadacould accept because it did not address the question of whether the payments of $4,000 per month were spousal support or child support. Suppose, for example, that the letter of June 5, 2006 had offered to allocate the $4,000 per month as to, say, $1,000 for child support and $3,000 for spousal support; and had further offered to continue the allocation so long as the $4,000 per month was payable under paragraph 8 of the court order dated November 5, 1998, such offer, if rejected, may have entitled a successful taxpayer to costs higher than the party and party costs provided in Schedule II, Tariff B. In the preceding sentence, I say only "may have entitled" because the consent of the former wife receiving the $4,000 per month may have been required to effect a binding settlement on all parties.
[8] Having regard to the basic issue before the Court, the Appellant's letter of June 5, 2006 did not resolve that issuein any way that would avoid litigating identical payments in years subsequent to 2001. Therefore, the Appellant's letter of June 5, 2006 cannot be used by the Appellant, following his success in Court, to obtain costs higher than the party and party costs provided in Schedule II, Tariff B. The Appellant's application under Rule 147(7) is dismissed without costs.
Signed at Ottawa, Canada, this 6th day of March, 2007.
"M.A. Mogan"
Mogan D.J.
STYLE OF CAUSE: JOHN KRPAN AND THE QUEEN
REASONS FOR ORDER BY: The Honourable Justice M.A. Mogan
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Counsel for the Appellant: |
Allan D. Powell |
|
Counsel for the Respondent: |
Nimanthika Kaneira |
COUNSEL OF RECORD:
Firm: McLean & Kerr LLP
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Canada