Date: 20000804
Docket: 1999-1768-IT-I
BETWEEN:
PHILIP FOLEY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bowman, A.C.J.
[1] These appeals are from assessments for the taxation years 1995 and 1996. The issue is the deductibility under paragraph 60(b) of the Income Tax Act, as it read in those years, of payments made by the appellant to his spouse from whom he was separated for the support of their two children.
[2] In 1995 and 1996, paragraph 60(b) permitted the deduction of alimony or maintenance payments as follows:
(b) 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.
[3] The appellant in 1995 paid his spouse $710 per month for the support of his children for eight months and $690 for one month. In January 1996, he paid her $710. Commencing in February, he paid her $900 per month until October 1996 and for November and December 1996 he paid her $900 per month through the Family Support Plan. It has therefore been established that he paid his wife $6,370 in 1995 and $10,610 in 1996 for child support.
[4] In filing his returns of income for those years, he claimed as a deduction $6,370 for 1995 and $9,000 for 1996. It is unclear why he did not claim the full amount paid in 1996. His tax adviser in the notice of objection stated that the payments in 1996 totalled $8,810. The appellant in a statement attached to a letter of October 2, 1997 sent by his lawyer to Revenue Canada alleges that he paid $10,655.
[5] The best evidence before me is that his total payments in 1996 were $10,610. Of this amount, the two payments of $900 for November and December 1996 were made directly to the Family Support Plan.
[6] The Minister disallowed all of the payments made in 1995 and all but $2,700 for 1996. He disallowed $6,300 being the difference between the $9,000 claimed and the $2,700 allowed.
[7] The reply to the notice of appeal is singularly uninformative in that it fails to state which payments were being allowed and which were not.
[8] There was an order of the Ontario Court dated September 25, 1996 as follows:
1. THIS COURT ORDERS that the Defendant shall pay interim interim child support fixed in the amount of $900.00 per month commencing August 1, 1996.
[9] It seems evident that what the assessment allowed was the payments of August, September and October 1996. Why the assessment did not allow the payments for November and December 1996 made to the Family Support Plan is unclear. Even on the Crown's theory, they should have been allowed. They were unquestionably paid. Perhaps the assessor did not allow them because he did not see any receipts or perhaps because the appellant claimed only $9,000.
[10] On December 16, 1996, a judgment was issued again ordering the appellant to pay child support of $900 per month. That judgment is not particularly germane to the issue here.
[11] I turn now to the question of the payments made prior to August 1, 1996. They were not made under a decree, order or judgment of a competent tribunal. The orders that were made in September and December 1996 contained no retroactivity provision of the type contemplated by subsection 60.1(3), which read at that time as follows:
For the purposes of this section and section 60, where a decree, order or judgment of a competent tribunal or a written agreement made at any time in a taxation year provides that an amount paid before that time and in the year or the preceding taxation year is to be considered to have been paid and received thereunder, the amount shall be deemed to have been paid thereunder.
[12] Whether this was inadvertent or intentional is something on which I shall not speculate. I note that Mr. Foley appeared in person without counsel on the motion of 25 September 1996.
[13] The issue then is whether the payments in 1995 and up to the order of September 25, 1996 were made pursuant to a written agreement.
[14] On October 2, 1997, Mr. Foley's lawyer, J. Mark Coffey, wrote to Revenue Canada. His letter contains a reasonably accurate summary of the appellant's position. It reads:
I first saw Mr. Foley at my office April 24, 1995. Mr. Foley advised me that the date of separation of the parties was March 26, 1995 and he was paying child support of $710.00 per month pursuant to an informal agreement with his ex spouse.
On May 26, 1995 the parties and their respective lawyers had a settlement meeting in Milton. The contentious point between the parties was the quantum of child support. Mr. Foley maintains the understanding between the parties was that he was paying child support by paying the mortgage each month amounting to $750 per month. I understand the position of Mrs. Foley was that she wanted more child support but she accepted this support. Mr. Foley has receipts/cancelled cheques marked child support for 1995 confirming this agreement.
I attach hereto correspondence from Mrs. Foley's lawyer to myself dated June 12, 1995. I refer you to paragraph 11 of the aforesaid letter dealing with child support. I feel this letter is confirmation in writing of the agreement regarding child support.
In January 1996, Mrs. Foley commenced a Family Law Action claiming among other things, child support.
On February 2, 1996 my client sent an offer to settle among other things child support in the amount of $900 per month commencing February 8, 1996 pending cross examinations. I attach hereto a true copy of the aforesaid offer to settle.
On February 6, 1996 the aforesaid offer to settle was accepted. I attach hereto correspondence from Mrs. Foley's lawyer dated February 6, 1996 confirming interim interim child support of $900 per month commencing February 8, 1996 pending cross examinations. Hence from February 6, 1996 on there was a written agreement for increased child support.
On February 8, 1996 I acknowledged the acceptance of the offer to settle and requested the other lawyer to prepare the necessary consent motion. I attach hereto the aforesaid letter.
On September 25, 1996 Mrs. Foley went back to court in an attempt to try to back out of the previous agreement reached with respect to custody and support. I recall that Mr. Foley went to court on his own and dealt with the matter which eventually resulted in the court order of Justice Mossop dated September 25, 1996. Despite Judge Mossop's ruling the Order should have reflected interim interim child support of $900 per month commencing February 8, 1996 pursuant to the accepted offer to settle.
In summary in 1995 Mr. Foley paid child support of between $710 per month to $800 per month pursuant to an agreement reached at the settlement meeting held May 26, 1995. The quantum of support was temporary and not finally agreed to. It was agreed that child support was essentially his mortgage payments. This agreement was confirmed in the aforesaid letter of June 12, 1995.
In 1996 Mr. Foley paid interim interim child support of $900 per month commencing February 8, 1996 pursuant to an accepted offer to settle evidenced in writing by Mrs. Foley's lawyers letter dated February 6, 1996. Mr. Foley continued to pay the $900 per month pursuant to the aforesaid agreement until this matter was finally settled and continues to pay child support at the rate of $900 per month plus cost of living adjustment.
[15] On June 12, 1995, Mr. Mazzorato, Mrs. Foley's lawyer, wrote to Mr. Coffey in part as follows:
RE: FOLEY v FOLEY.
This will confirm our settlement meeting held on May 26, 1995. We wish to set out the areas in which the parties had come to an agreement. The are as follows:
...
11. Child Support:
It appears that child support is a contentious issue at this point. Mr. Foley has been paying one mortgage payment per month, amounting to approximately $750.00. ...
I have recently had a telephone conversation with Ms. Foley who advises that she wishes to conclude the matter forthwith. Accordingly, I have instructions to proceed with a Petition for Divorce and Motion, if we do not have confirmation that the terms in paragraphs 1 – 10 are acceptable, within five days. Ms. Foley has suggested that the issue of the quantum of child support should be resolved by way of a Motion, on an interim basis, and by way of a trial of an issue, on a permanent basis.
[16] Far from evidencing an agreement of any sort, written or otherwise, regarding child support payments, the letter from Mrs. Foley's lawyer is clear evidence that in June 1995 there was no agreement. The payments in 1995 were not made under a written agreement. The appeal for 1995 must therefore be dismissed.
[17] On February 2, 1996, Mr. Coffey wrote to Mr. Mazzorato. His letter reads in part as follows:
RE: FOLEY vs FOLEY
My client offers to settle the motions and action as follows:
...
11. Child Support
Mr. Foley pays child support of $900 per month ($450 per month per child) commencing February 8, 1996 on an interim interim basis pending examinations or if accepted $900 per month commencing February 8, 1996 plus annual C.O.L.A. increases if Mr. Foley receives same at work.
[18] On February 6, 1996, Mr. Mazzorato responded to Mr. Coffey. His letter reads in part:
I acknowledge receipt of your fax of February 2, 1996. I am pleased to advise that my client has accepted the terms contained therein.
I will prepare the necessary Order crystallizing the settlement. More specifically, with respect to paragraph 11, Mrs. Foley is agreeing that there be interim interim child support in the amount of $900.00 per month commencing February 8, 1996, pending cross-examinations.
[19] On February 8, 1996, Mr. Coffey responded to Mr. Mazzorato as follows:
I acknowledge receipt of your client's acceptance by fax dated February 6, 1996 of my client's offer to settle dated February 2, 1996.
My client will borrow the $900 to pay Ms. Foley directly this Friday February 9, 1996 provided your client supplies a written receipt regarding this child support for February 1996, his contents as set out in his motion are ready for pick up this Friday (if possible), and examinations are completed within 21 days. My secretary will contact your secretary today to schedule cross-examinations in Milton before the end of February 1996.
I do not recommend payments directly to support recipients because it causes problems with the Family Support Plan but my client shows good faith by paying directly. I trust you will provide the draft consent order to finally settle all issues except child support which is $900 month commencing February 8, 1996 on an interim, interim basis pending cross examinations.
I suggest you prepare a consent motion with a consent attaching the draft consent order for my approval. I will attend to filing the consent motion. The sooner this order is filed the sooner my client can pay the Family Support Plan.
[20] The written receipt for February 1996 was in fact given.
[21] The respondent contends that the exchange of correspondence between the solicitors is not a written agreement within the meaning of paragraph 60(b) of the Act. Counsel contends that a "written agreement" under that provision is an agreement signed by both parties and cannot be an exchange of correspondence between the solicitors for the parties.
[22] In support of this conclusion he has cited a number of cases to which I shall refer briefly.
[23] Hodson v. The Queen, 88 DTC 6001, is a decision of the Federal Court of Appeal which held that there has to be a written agreement or court order to support a deduction under paragraph 60(b). I agree. That is what the statute says.
[24] In Kapel v. M.N.R., 79 DTC 199 at 200 (Tax Review Board) M.J. Bonner, Member, as he then was, (now Bonner, J.) said, in reference to a separation agreement filed as Exhibit A-1:
It will be observed that Exhibit A-1 was signed by the Appellant alone. The signed original of the document was given by the Appellant to his wife, who immediately departed for Toronto with her daughter.
...
In my view whatever else may be required to constitute a written separation agreement for purposes of paragraph 60(b), the signature of both parties to an agreement is an irreducible minimum. This conclusion in my view, flows from the decision of Collier, J., in William Edward Horkins v. Her Majesty the Queen, 76 DTC 6043. The Appellant has, by reason of the absence of Mrs. Kapel's signature, been obliged to rely on her conduct to establish acceptance of Exhibit A-1 which can only be read, standing alone, as an offer in writing. In view of this conclusion it is unnecessary to consider other arguments advanced. However, I will observe that one of the further difficulties which lay in the Appellant's way was the failure of Mrs. Kapel to agree in writing to live separate and apart from her husband.
[25] It will be observed that only one party signed the agreement. That is not the situation that we have here.
[26] The Kapel decision was quoted with approval by Christie, A.C.J. (as he then was) in Knapp v. M.N.R., 85 DTC 424. In that case, there was nothing that could be called a written agreement signed by either party. The appellant argued that the cheques signed by the husband and the receipts signed by the wife were a written agreement. Such an argument was obviously doomed. The word "agreement" denotes at least a binding obligation.
[27] Christie, A.C.J. quoted from a decision of Collier, J. in Horkins v. The Queen, 76 DTC 6043 at 6046:
Counsel urged that the following facts when put all together amounted to a written separation agreement pursuant to which the plaintiff was separated and living apart, and the payments in question were made pursuant to a written agreement:
(a) husband and wife had orally agreed to live separate and apart
(b) written draft separation agreements passed back and forth between their representatives, as well as correspondence on the same matters directly between the parties. Those documents and letters, it is said, confirmed in writing the separation and the living apart
(c) the acceptance of the alimony cheques by the wife for the months in question, and the general reference to the payments in the letter earlier set out (Exhibit 5 of the Agreed Statement of Facts).
In my opinion, no matter how hard one strains to find in favour of the plaintiff, those facts cannot be held to be an agreement in writing or a written separation agreement (or both). They do not, as I see it, meet the requirements of 11(1)(l).
[28] Christie, A.C.J. also quoted from a decision of R.S.W. Fordham, Q.C. of the Tax Review Board in Kostiner v. M.N.R., 63 DTC 478 at 479:
The Board has held consistently that informal writings such as correspondence and memoranda between a husband and wife, or between their respective solicitors, will not be acceptable as evidence of the right to deduct alimony or maintenance payments from the payer's taxable income. The wording of section 11(1)(l) is reasonably clear and means just what it implies. It contains no reference whatever to correspondence and other informal writings.
[29] I do not think that Mr. Fordham could have meant to say that an exchange of letters between the solicitors for the parties giving rise to a binding agreement cannot be a written agreement.
[30] Counsel relied heavily upon a decision of the Chairman of the Tax Review Board, the Honourable Lucien Cardin, in Ardley v. M.N.R., 80 DTC 1106. He said at pages 1108-1109:
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 acknowledgement 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 statements 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 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 section 60(b).
[31] I have not of course seen the documents that were before the Honourable Lucien Cardin but in any event that is not the situation that I have to deal with here.
[32] From these cases, counsel says that a written agreement must (a) be signed by both parties; and (b) must be in one document. In considering this question, a number of hypothetical cases come to mind.
a) Could an agreement signed on behalf of both parties by their respective solicitors be a written agreement for the purpose of paragraph 60(b)? Clearly it could, in my view. Agreements entered into by agents acting within the scope of their authority bind the principals. There is a vast jurisprudence on the meaning of "note or memorandum in writing" as used in the Statute of Frauds, dating back to the 17th century in England. The cases in this regard are of limited assistance here because in the Statute of Frauds, both in England and in the provinces of Canada where that statute survives, there also appear, following "note or memorandum in writing", the words (or some variation thereof) "signed by the party to be charged or his or her agent duly authorized ..."
There is some English authority to the effect that "contract in writing" means signed by the parties. For example Jessel M.R. said in Firmstone's Case, (1875) L.R. 20 Eq. 524 at 526:
... "duly made in writing" means, I suppose, made by the contracting party.
He repeated this view in Pooley v. Driver, (1877) 5 Ch.D. 458.
I do not think that "contract in writing" or "written agreement" requires the physical affixing of the signature of the parties. Where legislators require that a written agreement be signed by the parties, they are perfectly capable of saying so, as in the Statute of Frauds. The physical signing of the contract by both parties is of course evidence of their intent to be bound but it is not a requirement of paragraph 60(b) of the Income Tax Act.
The definition of "writing" in subsection 35(1) of the Interpretation Act is as follows:
"writing", or any term of like import, includes words printed, typewritten, painted, engraved, lithographed, photographed or represented or reproduced by any mode of representing or reproducing words in visible form.
This would in my view include a facsimile transmission or electronic mail. The latter at least could not have a handwritten signature.
Even if, contrary to my view, a signature were required, the parties' solicitors signed the letters with the intent and effect of binding their respective clients.
There is a very full discussion by Cattanach J. of the question of the signing of a pleading by a solicitor who signed under the name of the deputy minister in R v Fredericton Housing Ltd., 73 C.T.C. 160.
In Morton v. Copeland, 16 C.B. 517, 24 L.J.C.P. 169, 139 E.R. 861 (1855) the expression "consent in writing by the author or proprietor" was considered. Maule J., with whom the other three members of the court agreed, said at pages 868-9:
That which the statute requires is, "the consent in writing of the author or proprietor." Now, it appears to me that this was the consent of the author, and it was in writing. The statute does not say that the consent shall be written by the author, or signed by him, or indeed by any body. It is objected to this document, that it was not written by the author or signed by him. The statute simply requires that the consent shall be his act, and that it shall be in writing. One object of requiring it to be in writing evidently is, that the terms of the consent may be beyond the possibility of doubt or dispute. That object is attained perfectly, whether it be in the handwriting of the party himself or not. There may sometimes be another object to be attained by requiring an instrument to be in writing, viz. to identify the act as the act of the party, as in the case of a will, and in other instances mentioned in the statute of frauds, 29 Car. 2, c. 3, where the instrument is expressly required to be signed by the party to be charged thereby. In those cases, the signature of the party serves to identify the writing as the very writing by which the party is to be bound. In some of the cases provided for by that statute, the signature may be either that of the party himself, or that of an "agent thereunto lawfully authorised by writing," as in the case of leases, s. 3; or of "some other person thereunto by him lawfully authorised" as in the case of agreements, s. 4; or by "some other person in his presence and by his express directions," as in the case of a devise of land, s. 5, or "in his presence and by his directions of consent," s. 6; or by "their agents thereunto lawfully authorised," as in the case of the sale of goods, s. 17. The necessity of signature arises in every case from the express requirement of the statute. Signature does not necessarily mean writing a person's christian and surname, but any mark which identifies it as the act of the party. I cannot call to mind any document which by the law of this country requires to be written entirely by the person who is to be bound by it,—a holograph. In the statute now under consideration, not a word is said about whose writing the document shall be: it merely seems designed to exclude that kind of doubt and uncertainty which arises from the circumstance of a thing not being evidenced by writing at all.
b) Suppose a formal separation agreement were prepared and one copy were signed by one spouse and another copy signed by the other. This would be binding and would in my view be a written agreement. Agreements signed in counterpart are a part of commercial life.
c) Suppose one spouse prepares an agreement and sends it to the other spouse saying "I offer to settle our matrimonial differences on the basis of this agreement" and the other spouse writes back "I accept". This in my view is a binding agreement and it is in writing. Yet the respondent's theory is that it is not an agreement in writing because it does not have the signature of both parties on the same piece of paper.
d) Suppose an e-mail is sent by one spouse to the other offering to settle the matrimonial dispute, including payments of alimony and maintenance and the other spouse sends an e-mail back saying "I accept". Problems of proof aside, this is clearly binding and just as clearly in writing even though no handwritten signature is in evidence. If the exchange of e-mail communications were between the parties' solicitors, the result would be the same in my view.
[33] The law on this point is in my opinion correctly stated by Reed J. of the Federal Court in Burgess v. The Queen, 91 DTC 5076 at 5081:
With respect to the jurisprudence which exists with respect to the interpretation of paragraph 60(b) and its predecessor 11(1)(l), a distinction is not always made in that jurisprudence between the requirements of a "written agreement" and the requirements of "a written separation agreement". As a matter of statutory interpretation, I could accept that the first, a written agreement, could be entered into as a result of an exchange of letters between counsel, in the same way that contracts are often formed through an exchange of letters. And, in this case, it is at least arguable that such existed. There is, however, simply no documentation which could support an argument that "a written separation agreement" existed. Thus, even if the first requirement of paragraph 60(b) were met, the second is not.
[34] The words "written separation agreement" were in paragraph 60(b) in the taxation years that were before Reed J. They no longer are.
[35] In my opinion, the exchange of correspondence between the solicitors constituted a written agreement within the meaning of paragraph 60(b). Accordingly, the appellant is entitled to deduct the payments of $900 made for the months from February 1996 to December 1996 aggregating $9,900. The payments for the months from February to July were made under that written agreement. The assessment seems to have proceeded on the basis that the August, September and October payments were made under the court order of September 25, 1996, even though the August and September payments were made before the order, and no reference to subsection 60.1(3) was made. Whether or not that assumption was correct, the August and September payments were made in any event under the written agreement, as well as the payments for February through July. The payments for October, November and December were made under the court order.
[36] The appeal for 1995 is dismissed. The appeal for 1996 is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the appellant is entitled to deduct in computing his income for 1996 under paragraph 60(b) of the Income Tax Act the payments of $900 per month made for the months from February to December 1996.
[37] The appellant having achieved more than 50 per cent success is entitled to his costs, if any, in accordance with the tariff.
Signed at Ottawa, Canada, this 4th day of August 2000.
"D.G.H. Bowman"
A.C.J.