BETWEEN:
and
REASONS FOR JUDGMENT
(Delivered orally from the bench on July 22, 2005, in Calgary, Alberta.)
[1] The appellant is appealing from a reassessment of her 2001 taxation year by which the Minister of National Revenue (the "Minister") included in her income $9,600 in support payments that she received from her ex-spouse, Donald Clifford. The facts in the case are not in dispute.
[2] The appellant and Mr. Clifford separated in May 1995. Pursuant to a court order dated December 11, 1995 Mr. Clifford was ordered to pay $400 per month for the support of each of the two children of the marriage.
[3] Mr. Clifford made all of the child support payments to the appellant that were required under that order, including payments totalling $9,600 in 2001.
[4] In July 1997, the appellant and Mr. Clifford signed a T1157 form entitled, "Election for Child Support Payments"
[5] A T1157 election form is prescribed under the Income Tax Act (the "Act") and required to be filed with the Minister where former spouses agree to treat child support payments made pursuant to pre-May 1997 agreements or orders as not taxable to the recipient and not deductible to the payer. The provision for this election is made in the definition of "commencement date" in subsection 56.1(4) of the Act. In the absence of the election, the payments are, of course, deductible to the payer and taxable to the recipient.
[6] The form required the name, social insurance number, telephone number of the payer and recipient of the support, and the amount of support payments and the date the parties chose to have the election apply.
[7] The appellant testified that she had filled out the T1157 form and signed it, and that Mr. Clifford then signed the form. The date the election was to apply was originally filled in as July 1, 1997. However, after the form was signed by both parties, the appellant changed the starting date of the election to May 1, 1997, from July 1, 1997. She testified that upon rereading the form, she believed that it required a start date of May 1, 1997, and, therefore, that it was necessary to correct the start date which had originally been filled in.
[8] The appellant admitted that she made this change in Mr. Clifford's absence and without his knowledge. She then filed the form and received a letter back from the Canada Customs and Revenue Agency (CCRA) dated December 12, 1997, acknowledging receipt of the election and advising that the child support payments that she received from Mr. Clifford starting May 1, 1997, would not be taxable to her.
[9] Based on this letter, the appellant did not include any subsequent child support payments from Mr. Clifford in her income.
[10] Mr. Clifford testified that the signature on the T1157 form in question was his, but could not recall whether he had read the form before he signed it. He had no specific recollection of any part of the form, including the start date of the election. He said that he did not consent to the change made by the appellant to the start date after he signed the form.
[11] By notice of reassessment issued to the appellant on September 2, 2004, the Minister included the support payments the appellant received from Mr. Clifford in her income in 2001 on the basis that the election was invalid.
[12] The issue before the Court is whether the unilateral change made by the appellant to the starting date for the election on the T1157 form invalidated the election.
[13] From the outset, it should be noted that the respondent accepted that the appellant made the change to the election form innocently and without any fraudulent intention. It is agreed that the appellant simply attempted to correct what she perceived to be an error in the information that was being provided.
[14] Appellant's counsel took the position that the alteration to the election form was not material and should not affect the validity of the election. Counsel asked that the Court consider the parties' intention to have the election be effective at least from July 1, 1997 onwards, and submitted that the change was not significant in light of the expected duration of the support arrangements.
[15] Respondent's counsel submitted that the change in the date on the election was a material significant change to the election, and asked the Court to apply the rule in Pigot's case[1] and to find that the election was invalid.
[16] The rule in Pigot's case is a rule of contract, and, in its simplest terms, provides that if a promisee intentionally alters a written contract document in any material respect, he cannot enforce the contract against the promisor. The rule is intended to preserve the sanctity of documents.
[17] Counsel for the respondent cited the decision of the New Brunswick Court of Appeal in Roynat Ltd. v. Sommerville[2] as Canadian authority for the proposition that the rule in Pigot's case applies even in cases where the party who made the change was not acting fraudulently.
[18] Finally, counsel submitted that any change that varies the legal position of the parties from what is set out in the original document or varies the legal effect of the document is a material alteration for the purpose of applying the rule. Since the change in this case affected Mr. Clifford's right to claim a deduction for the child support he paid for the months of May and June 1997, counsel contended that the alteration made by the appellant to the election form was material.
[19] In my view, while the T1157 election constitutes an agreement between the recipient and the payer of child support regarding the tax treatment of the support payments, it appears incorrect to consider the election a contract between the parties, since there is no indication of any consideration being provided by either of them to the other for making the election.
[20] Therefore, the question arises as to whether it is appropriate to apply the rules of contract, such as the rule in Pigot's case, to a joint election made under the Act. That rule is directed to the situation of one party attempting to enforce a contract against the other.
[21] No authority was provided, and I have been unable to find any to suggest that joint elections under the Act should be treated in law as contracts between the joint electors. The election, if valid, is only enforceable by the Minister to establish the parties' tax liability in accordance with the provisions of the Act.
[22] I believe the matter that must be determined here is whether the T1157 election form filed with the Minister in this case met the statutory requirements set out in the definition of "commencement day" in subsection 56.1(4) of the Act, the relevant parts of which read:
"commencement day" at any time of an agreement or order means
...
(b) where the agreement or order is made before May 1997, the day, if any, that is after April 1997 and is the earliest of
(i) the day specified as the commencement day of the agreement or order by the payer and recipient under the agreement or order in a joint election filed with the Minister in prescribed form and manner,
...
[23] That provision clearly requires that both the payer and recipient specify the commencement date for the order in the joint election, and requires them to file the election with the Minister. In my view this is the only meaning the words of the statute can bear.
[24] In this case the parties agreed on the date of July 1, 1997, as the commencement date, but the appellant unilaterally changed that date to May 1, 1997. Thus, the date specified in the form that was filed with the Minister cannot be said to have been specified by both the payer and the recipient of the support payments.
[25] Mr. Clifford was unaware of and did not consent to the changed date. Therefore, the election form that was filed with the Minister did not contain an agreed-upon date when the election would apply to the child support payments, and was not effective to create a commencement day for the December 11, 1995 court order under which Mr. Clifford paid the child support to the appellant.
[26] In my view it is not possible for the Court to substitute another date (i.e. July 1, 1997) for the one inserted by the appellant after Mr. Clifford signed the document. The Act does not give the Court that power.
[27] In the case of The Queen v. Adelman[3], the Federal Court determined that a taxpayer who had indicated in his tax return his desire to make a certain election, but had failed to file the election in a prescribed form, was not entitled to receive the benefit of the election. At page 5379 of that decision, the Court cited the Alberta Supreme Court in Re Public Finance Corp. and Edwards Garage Ltd. as follows:
[W]hen powers, rights or privileges are granted with a direction that certain regulations or formalities shall be complied with, it seems neither unjust nor inconvenient to exact a rigorous observance of them as essential to the acquisition of the right or privilege or authority conferred, and it is therefore probable that such was the intention of the legislature...[4]
[28] The Court in Adelman went on to say:
... It seems neither unjust nor unreasonable, nor in any way inconsistent with the Act or the Regulations, for a taxpayer to be required to adhere strictly to the procedure prescribed by the law for the exercise of this right having regard to the fact that its exercise will affect his position and that of the Minister ...[5]
[29] These remarks are apt in the circumstances of this case.
[30] The fact that an official of the Minister sent out a letter indicating its acceptance of the election form is not sufficient to create an estoppel in favour of the appellant. Whether the election form meets the requirements of the Act is a question of law, and an estoppel cannot be founded on a representation of law made by an official of the Minister.
[31] For all these reasons, I find that the election form filed by the appellant with the Minister in 1997 is invalid and that the Minister correctly included support payments she received from Mr. Clifford in her income in her 2001 taxation year. The appeal is therefore dismissed
Signed at Ottawa, Ontario , this 8th day of September 2005.
STYLE OF CAUSE: SALLY E. KESICK AND HER MAJESTY THE QUEEN
PLACE OF HEARING: Calgary, Alberta
DATE OF HEARING: July 22, 2005
REASONS FOR JUDGEMENT BY: The Honourable Justice B. Paris
DATE OF JUDGMENT: September 8, 2005
APPEARANCES:
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COUNSEL OF RECORD:
Firm: Salmon & Company
Calgary, Alberta
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Ontario