Date: 20010327
Docket: 2000-2702-IT-I
BETWEEN:
KERRY DONALD GRANT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Mogan J.
[1] The Appellant and his wife separated in September 1995 when he left the matrimonial home. They have lived separate and apart at all material times since September 1995. The issue in this appeal is whether the Appellant is entitled to deduct in computing income certain amounts which he paid to his wife in 1997 for her support and the support of their two younger children. The Appellant has elected the informal procedure. The only taxation year under appeal is 1997.
[2] The Appellant and his wife (Kathleen) were married in 1973. There were three children born of the marriage: Ashley a daughter born in October 1978; Kyle a son born in December 1982; and Lauren a daughter born in December 1985. When the Appellant and Kathleen separated in September 1995, Ashley had already moved out of the family home. Immediately after the separation, the Appellant commenced paying $1,000 per month to Kathleen for her support and the support of Kyle and Lauren. Those payments of $1,000 per month continued from September 1995 until February 1998 when they were adjusted to a different amount.
[3] Soon after the separation, the Appellant and Kathleen each retained a lawyer. The Appellant retained Allan Rowsell and Kathleen retained Patricia Lucas. With the advice of their respective lawyers, the Appellant and Kathleen finally signed a separation agreement in March 1998, entered as Exhibit A-3.
[4] Counsel for the Respondent argued that the appeal should be dismissed because (i) the Appellant did not prove that he made the payments in 1997; and (ii) even if he did make the payments, they were not made under a written agreement. Counsel argued that the Appellant did not produce cancelled cheques or other documentary evidence of payment; and he did not call Kathleen as a witness to confirm that she received the amounts. The total amount in dispute is $12,000 on the basis of a $1,000 payment in each month of 1997. The Appellant swore under oath that he paid $1,000 by cheque each month. He stated that he did not produce the cancelled cheques because his bank would charge him $260 to retrieve the actual cheques and he thought that the bank charge was too high. He stated that his bank record would show the $1,000 payment each month but he had not brought his bank record (passbook or monthly statement) to Court.
[5] I am satisfied that the Appellant made the payments of $1,000 per month throughout 1997. I rely on the following evidence. First, the Appellant was a most credible witness. He was sure of his facts. He had the demeanour of a person telling the truth. And his explanation for not obtaining the actual cancelled cheques (a bank service charge that was too high) was reasonable. Second, a letter (Exhibit A-1) dated April 19, 1996 from Kathleen's lawyer to the Appellant's lawyer ends with the following sentence:
... Our willingness to await your client's pleasure in completing the necessary financial information was premised on his undertaking to maintain the support obligations at the level of $1,000 per month, and we forthwith require his satisfaction of his undertaking.
The important words in the above sentence are "... his undertaking to maintain the support obligations ... of $1,000 per month". The word "maintain" implies an ongoing arrangement under which the Appellant was paying $1,000 per month. And third, a letter (Exhibit A-2) dated May 21, 1996 from Kathleen's lawyer to the Appellant's lawyer ends with the following paragraph:
My client is also, of course, looking for an increase in the child support, especially given that the agreement to receive $1,000 per month was made at a time when only two of the three children were residing at home, the third having come to reside there shortly thereafter.
[6] This last statement from the wife's lawyer not only refers to an "agreement to receive $1,000 per month", but also confirms the Appellant's oral evidence that the amount of $1,000 was based on only the two younger children residing at home. It is the Appellant's evidence that the oldest child, Ashley, never did return to reside on a permanent basis with Kathleen in the family home; and he never was required or expected to increase the monthly payment of $1,000 until February and March 1998 when the separation agreement (Exhibit A-3) was signed. I find as a fact that the Appellant and his wife were living separate and apart throughout the calendar year 1997; and that he paid her $1,000 per month throughout 1997 for her support and the support of the two younger children (Kyle and Lauren).
[7] The Appellant faces a more serious challenge from the Respondent on the question whether the monthly amounts paid to his wife in 1997 were paid "under a written agreement". The legislation permitting the deduction of maintenance payments in the 1997 taxation year is significantly different from the legislation for 1996 and prior years as the result of a change in government policy following the decision of the Supreme Court of Canada in Thibaudeau (95 DTC 5273). The relevant legislation 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) the total of all amounts each of which is an amount determined by the formula
A - (B + C)
where
A is the total of all amounts each of which is a support amount paid after 1996 and before the end of the year by the taxpayer to a particular person, where the taxpayer and the particular person were living separate and apart at the time the amount was paid,
Note: the amounts B and C are not relevant in this appeal.
60.1(4) The definitions in subsection 56.1(4) apply in this section and section 60.
56.1(4) The definitions in this subsection apply in this section and section 56.
"support amount" means an amount payable or receivable as an allowance on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and children of the recipient, if the recipient has discretion as to the use of the amount, and
(a) the recipient is the spouse or common-law partner or former spouse or common-law partner of the payer, the recipient and payer are living separate and apart because of the breakdown of their marriage or common-law partnership and the amount is receivable under an order of a competent tribunal or under a written agreement; or
(b) the payer is a natural parent of a child of the recipient and the amount is receivable under an order made by a competent tribunal in accordance with the laws of a province.
[8] The Appellant claims that each of his payments in 1997 was a "support amount" paid "under a written agreement" which was made before 1997. Having regard to the definitions of "child support amount" and "commencement day" in subsection 56.1(4), the basic rule in paragraph 60(b) is much different with respect to amounts paid under an agreement or order made after April 1997 or made before May 1997 but amended after April 1997. I am not concerned with the definition of "child support payment" in this appeal because (i) the Appellant's alleged written agreement was made before 1997; and (ii) any such agreement was not amended until March 1998 when a separation agreement (Exhibit A-3) was signed.
[9] Having regard to paragraph 60(b) and its counterpart in subsection 56(1), there has been much litigation concerning what constitutes a "written agreement". In this case, there is no document signed by the Appellant and Kathleen prior to March 1998 which has the title "separation agreement" or any similar title. Therefore, if the Appellant is to succeed, a written agreement must be inferred from other documents. I would not infer a written agreement from the monthly cheques (each in the amount of $1,000) which the Appellant issued to Kathleen in 1997 and which she cashed. Her acceptance and cashing of those cheques does not, by itself, mean that the Appellant and Kathleen had agreed that $1,000 per month was an appropriate maintenance amount. She may have cashed the cheques as a convenient method of receiving maintenance for herself and the two younger children without agreeing that the amount was adequate and consistently claiming that the amount should be higher. She did not testify, however, and there is no evidence that she disputed the quantum of the monthly amount.
[10] In fact, the evidence runs in the other direction. Exhibit A-1, a letter dated April 19, 1996 from Kathleen's lawyer to the Appellant's lawyer, refers to the Appellant's "undertaking to maintain the support obligations at the level of $1,000 per month". And Exhibit A-2, a letter dated May 21, 1996 from Kathleen's lawyer to the Appellant's lawyer ends with this paragraph:
My client is also, of course, looking for an increase in the child support, especially given that the agreement to receive $1,000 per month was made at a time when only two of the three children were residing at home, the third having come to reside there shortly thereafter.
Kathleen's lawyer clearly refers to "the agreement" and confirms it with respect to an amount per month. It is the Appellant's evidence that the oldest child, Ashley (a daughter born on October 28, 1978) had left the family home before he and Kathleen separated in September 1995, and that Ashley has not since returned to reside permanently with her mother. Ashley was only 16 years old in September 1995 (turning 17 one month later).
[11] In Nelson v. The Queen, 94 DTC 1003, the taxpayer had separated from his wife who had retained a lawyer. The wife's lawyer wrote a letter to the taxpayer in May 1987 setting out the terms of a proposed separation agreement. The taxpayer later attended at the office of his wife's lawyer and wrote at the end of the letter "Agreed to those terms listed in this letter Roy Nelson". Rowe J. held that the taxpayer's endorsement of the lawyer's letter constituted a written agreement.
[12] In this appeal, although the Appellant's lawyer did not specifically write his acceptance on Exhibit A-1 or A-2, Kathleen's lawyer has referred in Exhibit A-2 to "the agreement". In other words, a party of adverse interest in the matrimonial dispute (i.e. Kathleen's lawyer) has acknowledged in writing that there was, between the Appellant and Kathleen, "the agreement to receive $1,000 per month". After that letter of May 21, 1996 (Exhibit A-2), Kathleen could not deny that there was an agreement between her and the Appellant with respect to the monthly payments of $1,000. That is the precise amount which the Appellant paid each month in 1997.
[13] The important letter (Exhibit A-2) was written on May 21, 1996 long before the 1997 taxation year. The payment of $1,000 per month referred to in that letter was made each month throughout 1997 and was not changed until March 1998 when the formal separation agreement (Exhibit A-3) was signed changing the child support amount effective February 1, 1998. In the circumstances of this case, I hold that the payments of $1,000 per month made by the Appellant through 1997 were paid "under a written agreement" comprising the cheques (each in the amount of $1,000) delivered to Kathleen each month from September 1995 through to the end of 1997 plus the letter (Exhibit A-2) from Kathleen's lawyer dated May 21, 1996 confirming "the agreement". The appeal is allowed.
Signed at Ottawa, Canada, this 27th day of March, 2001.
"M.A. Mogan"
J.T.C.C.