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Docket: 2003-2282(IT)I |
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BETWEEN: |
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ORA P. HARKINS, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
____________________________________________________________________
Appeals heard on November 24, 2004, at Halifax, Nova Scotia, by
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The Honourable Justice Campbell J. Miller |
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Appearances: |
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Counsel for the Appellant: |
Matthew J.D. Moir |
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Counsel for the Respondent: |
Catherine McIntyre |
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JUDGMENT
The appeals from assessments of tax made under the Income Tax Act for the 1997, 1998 and 1999 taxation years are dismissed.
Signed at Ottawa, Canada, this 1st day of December, 2004.
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"CampbellJ. Miller" |
Miller J.
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Citation: 2004TCC787 |
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Date: 20041201 |
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Docket: 2003-2282(IT)I |
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BETWEEN: |
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ORA P. HARKINS, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
REASONS FOR JUDGMENT
Miller J.
[1] This is an informal procedure appeal by Mr. Ora Harkins for his 1997, 1998 and 1999 taxation years. The Minister of National Revenue disallowed the deduction of support payments in those years on the basis that the payments were not made pursuant to a written agreement. There is no dispute Mr. Harkins made the payments. Mr. Harkins maintains that there was a written separation agreement dated and signed in 1987 by him and his wife. The Respondent's position is that the document was not signed until 1999 or 2000.
[2] Mr. and Mrs. Harkins were married in September 1960 and separated in September 1986. Nothing was put in writing at the time of the separation, though Mrs. Harkins was anxious about her future security. This concern was captured in an undated letter, which Mr. Harkins suggested was received in September 1987, wherein Mrs. Harkins stated:[1]
You promised you'd have something to present to me on Sep. 16 - you've had 2 weeks - now I'm expected to wait until next week ... I need to have my future assured - I must have my future secured ...
[3] Mr. Harkins claims he drew up a Separation Agreement dated December 4, 1987. It is worth reproducing parts of that document:[2]
2(a) The husband agrees to pay to the wife $1300 monthly as a maintenance allowance and that subsections 60.1(2) and 56.1(2) of the Income Tax Act dealing with alimony and maintenance are to apply to the above maintenance allowance. This arrangement is implemented due to stress and health considerations of the wife and she may at any time change the arrangement and require that the whole of the $1300 be paid directly to her.
...
Dated at Darmouth, Nova Scotia, this 4th day of December, A.D., 1987
The rest of the agreement was written in similar legalese-type language.
[4] Mr. Harkins indicated he had no legal assistance in drafting this document, but relied on his years of experience in the financial planning sector. He also testified that the agreement was solely to assure Mrs. Harkins of her security, and had nothing to do with taxes. On cross-examination, Mr. Harkins admitted that he referred to Interpretation Bulletins prior to drafting the document. His position is that he and Mrs. Harkins signed the document in Mrs. Harkins' kitchen on December 4, 1987. There were no witnesses. Mr. Harkins initially said that he took a copy of the agreement but quickly changed his testimony to indicate that he did not need a copy, so he left the only copy with Mrs. Harkins. He further stated that Mrs. Harkins was satisfied at the time, that is in December 1987.
[5] In early 1988, Mrs. Harkins sought legal help from Mr. Douglas Sealey. She was not satisfied with him so she subsequently retained Ms. Nancy Bateman in June 1988. In a letter dated June 14, 1988, from Ms. Bateman to Mr. John Black, Mr. Harkins's lawyer, Ms. Bateman writes:[3]
... I understand matters have, to date, proceeded on an informal basis, however, Mrs. Harkins is now wanting to move things along in the context of signing a formal separation agreement.
[6] On July 18, 1988, Mrs. Harkins writes directly to Mr. Harkins requesting:[4]
What I would like, and at least to me anyway it would be the sensabile (sic) route to take, is for the both of us to sit down together and make up a basic draft of the separation agreement; at least this would cut out some of the letters, phone calls or whatever that cost so terribly much money ...
Some months later Mr. John Black, acting on behalf of Mr. Harkins, writes to Ms. Bateman:[5]
My client has prepared his 1987 tax return for filing. He wishes to claim maintenance payments of $5,460 for the tax year 1987. His actual payments were far in excess of this amount. He will need either an agreement or an order to support this deduction. Would you please discuss this with your client and let me know your position on this?
[7] In the mid-1990s Canada Customs and Revenue Agency (CCRA) conducted an audit of Mr. Harkins' 1992 and 1993 taxation years. In correspondence from Mr. Harkins to CCRA dated September 28, 1995, Mr. Harkins writes:[6]
... Support to an ex-wife to the tune of $15,000 or more a year without being able to get my hands on a signed separation agreement (thereby having my support deduction of a significantly lesser amount disqualified) ...
Ultimately Mr. Harkins does produce a December 4, 1987 separation agreement to CCRA. He testified that Mrs. Harkins had refused to give it to him for some period of time. On April 20, 2000, the Minister reassessed Mr. Harkins' 1997 tax liability to allow his claim for support payment deduction. Similar reassessments for 1998 and 1999 were issued by the Minister on January 22, 2001. On November 27, 2001, reassessments were issued disallowing the support payments. CCRA would have received the December 4, 1987 separation agreement prior to issuing their first reassessment in April 2000.
[8] Mrs. Harkins' accountant, Mr. Boulton, testified that he prepared Mrs. Harkins' 1997 to 1999 tax returns. When they were reassessed including the support amounts in income, Mr. Boulton represented Mrs. Harkins in appealing that reassessment. Mr. Boulton's evidence was that he was advised by Mrs. Harkins that the signed agreement of December 4, 1987 was not signed before the years under appeal, 1997, 1998 and 1999. He was led to believe that it was signed just before Mr. Harkins had to see CCRA. On behalf of Mrs. Harkins he successfully appealed the reassessment, as evidenced by the filing with the Tax Court of Canada a consent to judgment dated September 24, 2001, confirming the support payments were improperly included in Mrs. Harkins' income.
[9] The CCRA appeals officer, on Mr. Harkins' appeal of his 1997, 1998 and 1999 years, spoke to Mrs. Harkins during her investigation in 2002 and 2003, and was led to believe Mrs. Harkins had not signed the separation agreement until 1999 at the earliest, and only when demanded by Mr. Harkins on the basis that he would otherwise withdraw his support.
[10] Clearly, CCRA and Mr. Boulton both believed Mrs. Harkins that the December 4, 1987 separation agreement was not signed until shortly before Mr. Harkins produced it to CCRA in connection with his 1997 tax assessment.
[11] Mrs. Harkins was subpoenaed by the Respondent to testify. Her health precluded her from coming to Court so her evidence was given at home. I surmised that she suffered both physical and mental ailments though no detailed medical background was presented to me, other than a reference to Parkinson's disease. Mrs. Harkins indicated she would not have testified had she not been subpoenaed.
[12] In her emotional testimony Mrs. Harkins identified her signature on the December 4, 1987 separation agreement, but could not recall when or where she signed it; neither could she remember telling anyone that she signed it in 1999 or 2000.
[13] Mrs. Harkins also acknowledged her signature on a document dated December 5, 2003 with the following title:[7]
Re: Ora P. Harkins v. Her Majesty the Queen
Court Number: 2003-2282(IT)I - Your File: AR -3 - 65867
Respondent represented by Martin Hickey, Legal Counsel, Tax Law Services
She confirmed she did not prepare this document, but that Mr. Harkins did, that she reviewed it quickly, that she signed it because Mr. Harkins asked her to because he needed it for his Tax Court of Canada case, and that she was scared in not more thoroughly reviewing it. The document acknowledges that she signed the separation agreement in December 1987, and only maintained that she signed it 12 or 13 years later out of a sense of vindictiveness.
[14] This is a troubling situation, and one which may well have benefited from a section 174 application when Mrs. Harkins' appeal first surfaced. Regrettably that did not occur. This is a case to be decided entirely on the basis of the determination of the facts. If Mr. and Mrs. Harkins signed the December 4, 1987 separation agreement in December 1987, then Mr. Harkins gets a deduction for his support payments in 1997, 1998 and 1999. If however they signed that document just prior to Mr. Harkins presenting it to CCRA, resulting in their favourable reassessment of April 2000, then Mr. Harkins does not get the deduction. On balance I have not been convinced that Mr. Harkins' story rings true.
[15] I will first identify those elements of the evidence that suggests a finding that the agreement was signed in December 1987:
(i) Mr. Harkins testified it was signed on December 4, 1987 in the kitchen of the family home;
(ii) The physical agreement itself drawn by Mr. Harkins is "Dated ... this 4th day of December, A.D., 1987";
(iii) Exhibit A-1, an undated letter, suggests Mrs. Harkins is looking for a proposal;
(iv) Mrs. Harkins signed the December 5, 2003 document acknowledging the separation agreement was signed in December 1987.
[16] With respect to the last point, I place no reliance on this document as any credible admission by Mrs. Harkins that she actually signed the separation agreement in December 1987. In December 2003, Mrs. Harkins simply signed what was put in front of her at the request of Mr. Harkins, because he needed it for his own tax appeal. She neither prepared this document nor even read it thoroughly. My impression of Mrs. Harkins' explanation was that she simply did not want to upset Mr. Harkins. At trial she was incapable of confirming or denying the truth of the statements contained in the document.
[17] The evidence that causes me not to believe the document was signed in December 1987 is as follows:
(i) Mr. Harkins relied on his many years as a financial planner for dealing with the agreement in such a legalistic manner, yet he saw no need to keep a copy of this important document. This is not consistent.
(ii) Similarly, given his financial background, why would Mr. Harkins not have any witnesses? If the document was not signed until 1999 or 2000, there would have been very good reason not to have witnesses.
(iii) In his testimony, Mr. Harkins first stated that he took a copy of the agreement at the time it was signed, but he then later stated, no, he left the only copy with Mrs. Harkins. His testimony was confused and contradictory.
(iv) Mr. Harkins was adamant that the separation agreement was solely to reassure Mrs. Harkins as to her financial security and had "nothing to do with tax". Yet, the operative section of the agreement is completely tax driven. This is not consistent.
(v) Mr. Harkins' own lawyer's letter of January 4, 1989 indicates Mr. Harkins will need an agreement to get the deduction for support payments. This makes no logical sense if a written agreement already existed.
(vi) There are no independent third-party documents or evidence that confirms or makes any mention of the separation agreement.
(vii) Mr. Harkins testified that Mrs. Harkins was satisfied with the arrangement in December 1987, so why was she seeking legal advice in early 1988?
(viii) Why would Mrs. Harkins' lawyer, Nancy Bateman, write to Mr. Harkins' lawyer in June 1988 suggesting Mrs. Harkins was "wanting to move things along in the context of signing a formal separation agreement" if an agreement already existed?
(ix) Why, in July 1988, is Mrs. Harkins suggesting to Mr. Harkins they sit down and make up a basic draft of the separation agreement if she held a signed agreement dated December 1987?
(x) Mrs. Harkins told her accountant and a CCRA officer the same story, a year or more apart from one another, that the agreement was not signed in December 1987.
(xi) Mr. Harkins testified they separated in September 1986, though the agreement states September 1987.
[18] If this were a matter of Mr. Harkins having to raise a reasonable doubt in my mind, then he might have succeeded, but this is a civil matter and the onus is on Mr. Harkins to establish on a balance of probabilities that the agreement was signed in December 1987. The evidence I have just reviewed leads me to tip the balance away from a December 1987 signing. I do not accept Mr. Harkins' version of the facts. The support payments of 1997, 1998 and 1999 were not made pursuant to a written agreement. The appeals are dismissed.
Signed at Ottawa, Canada, this 1st day of December, 2004.
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"CampbellJ. Miller" |
Miller J.
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CITATION: |
2004TCC787 |
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COURT FILE NO.: |
2003-2282(IT)I |
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STYLE OF CAUSE: |
Ora P. Harkins and Her Majesty the Queen |
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PLACE OF HEARING: |
Halifax, Nova Scotia |
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DATE OF HEARING: |
November 24, 2004 |
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REASONS FOR JUDGMENT BY: |
The Honourable Justice Campbell J. Miller |
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DATE OF JUDGMENT: |
December 1, 2004 |
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APPEARANCES: |
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Counsel for the Appellant: |
Matthew J.D. Moir |
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Counsel for the Respondent: |
Catherine McIntyre |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
Matthew J.D. Moir |
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Firm: |
Weldon McInnis |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |