Date: 19991029
Docket: 98-1286-IT-I
BETWEEN:
RICHARD BEAUCHAMP,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for judgment
Somers, D.J.T.C.C.
[1] This appeal was heard at Ottawa, Canada, on October 5, 1999. It is an appeal under the informal procedure from an income tax assessment for the 1994, 1995 and 1996 taxation years.
[2] In notices of reassessment dated December 15, 1997, the Minister of National Revenue (“the Minister”) disallowed amounts of $4,800, $5,825 and $6,125 paid as alimony or other allowance payable on a periodic basis in computing the appellant’s income for the 1994, 1995 and 1996 taxation years, respectively. The issue to be decided is whether those amounts were deductible as alimony or other allowance payable on a periodic basis.
[3] In issuing the notices of reassessment, the Minister assumed, inter alia, the following facts, which the appellant admitted or denied or of which he said he had no knowledge:
[TRANSLATION]
(a) after receiving documents from the Ministère du Revenu (Quebec), the Minister questioned the appellant by telephone about his claim in respect of the alimony he had allegedly paid; (admitted)
(b) the appellant told the Minister that the amounts paid to his former spouse, Suzanne Dumouchel, were not paid under a decree, order or judgment of a competent tribunal or under a written agreement signed by both parties; (denied)
(c) the appellant told the Minister that, to support his claims, he could submit receipts duly signed by his former spouse, Suzanne Dumouchel; (admitted)
(d) the former spouse, Suzanne Dumouchel, did not report any alimony income whatsoever for any of the taxation years at issue; (no knowledge)
(e) the Minister cannot allow any amount whatsoever to be deducted as alimony or other allowance payable on a periodic basis because the amounts paid to the former spouse, Suzanne Dumouchel, were not paid under a decree, order or judgment of a competent tribunal or under a written agreement signed by both parties. (denied)
[5] The appellant and his spouse separated in September 1993. Following their separation and six mediation sessions that they attended before a notary, the notary prepared a draft agreement on the alimony to be paid by the appellant.
[6] The agreement was drawn up and sent to each party. The year 1995 was noted at the top of the first page of the agreement. The appellant and his spouse admitted that they did not sign the agreement.
[7] Paragraph 4 of the “Financial contributions for the children” section of the agreement reads as follows:
[TRANSLATION]
The alimony paid prior to the signing of this agreement, namely one hundred twenty-five dollars ($125.00) a week from April 29, 1995, until now, was arranged to be payable in that way and shall be considered to have been paid and received under the agreement. It shall be deductible for the father and taxable for the mother.
[8] The appellant and his former spouse, who both testified at the Court’s hearing, admitted that the specified amounts were paid and received for 1994, 1995 and 1996 starting on September 17, 1993. The witnesses admitted that they signed an agreement dated March 17, 1998, under which the appellant’s former spouse was to pay him $80 a week in alimony because custody of the children had changed. A judgment was rendered by the Superior Court (Family Division) on July 19, 1999, granting the parties a divorce and ratifying the agreement they had entered into on March 17, 1998, as an integral part of the judgment. The appellant stopped paying alimony to his former spouse in June 1997. The former spouse paid $80 a week in alimony starting on June 21, 1997.
[9] The appellant argued that he could deduct the amounts paid to his former spouse as alimony based on the unsigned agreement dated 1995. The fact that there was an agreement and that it was complied with entitles him to make the appropriate deductions. He relied on an article of the Civil Code of Québec providing that an agreement entered into and ratified by the payment of the amounts owed must be considered an agreement signed by the parties.
[10] The Minister relied on section 60 and paragraph 60(b) of the Income Tax Act, which read in part as follows:
SECTION 60: Other deductions.
There may be deducted in computing a taxpayer’s income for a taxation year such of the following amounts as are applicable:
. . .
(b) Alimony payments — 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 . . . .
[11] The courts have been consistent when it comes to the application of paragraph 60(b) of the Income Tax Act.
[12] The Federal Court of Appeal dismissed the appeal in Hodson v. The Queen (88 DTC 6001). Heald J.A., who wrote the reasons for judgment, stated the following at page 6003:
Parliament has spoken in clear and unmistakable terms. Had Parliament wished to extend the benefit conferred by paragraph 60(b) on separated spouses who, as in this case, do not have either a Court order or a written agreement, it would have said so. The rationale for not including separated spouses involved in payments made and received pursuant to a verbal understanding is readily apparent. Such a loose and indefinite structure might well open the door to colourable and fraudulent arrangements and schemes for tax avoidance. I hasten to add that there is no suggestion in the case at bar of any such fraudulent or colourable arrangement. The Minister agrees that, in the case at bar, the appellant has made the alimony payments to his spouse in good faith. Nevertheless, such a possible scenario in other cases commends itself to me as the rationale for the carefully worded restrictions set out in the paragraph. If the words used by Parliament create hardships, as suggested by the appellant, it is Parliament, and not the Court, that has the power to redress those hardships.
[13] Although the parties acted in good faith by submitting to mediation before a notary, the evidence confirms that they did not sign the draft agreement prepared by the notary. The appellant paid $125 a week in alimony, but the courts have consistently held in similar circumstances that amounts paid by consensus of the parties are not deductible if the agreement is not signed. In the case at bar, the agreement was not signed and no judgment was rendered by a tribunal ordering the payment of alimony for the 1994, 1995 and 1996 taxation years.
[14] Accordingly, the appeal is dismissed.
Signed at Ottawa, Canada, this 29th day of October 1999.
“J.F. Somers”
D.J.T.C.C.
Cases consulted
Risula v. Canada, [1996] T.C.J. No. 540
Curley v. Canada, [1992] T.C.J. No. 583
Daniel Kapel v. M.N.R., 79 DTC 199
Lorne Victor Ardley v. M.N.R., 80 DTC 1106
Reid v. M.N.R., 72 DTC 1540
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 9th day of February 2000.
Stephen Balogh, Revisor