Date: 20010112
Docket: 1999-3515-IT-I
BETWEEN:
BRIAN A.C. ALM,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bowie J.
[1] Mr. Alm appeals his income tax assessments for the taxation years 1995, 1996 and 1997. At issue is his claim that in computing his income for those years he was entitled under paragraph 60(b) of the Income Tax Act (the Act) to deduct certain amounts that he had paid to his estranged wife for the support of their children. His appeals were heard pursuant to the informal procedure on October 6, 2000. After hearing evidence and argument I adjourned the matter so that Mr. Alm could attempt to obtain more evidence. The hearing was completed by telephone conference on December 11, 2000, at which time some additional documents were entered as exhibits and I heard additional submissions.
[2] The evidence is not entirely clear as to when the Appellant and his wife separated, but it appears to have been in 1994 or the early part of 1995. On July 25, 1995, Justice Klebuc of the Saskatchewan Court of Queen's Bench made an Interim Order in proceedings begun by the wife. He ordered that the wife would have custody of the two youngest children of the marriage, and that the Appellant was required to pay her $547.00 per month for each child " ... commencing July 1, 1995 and payable on the first of each month thereafter for six months unless otherwise ordered". He also ordered the Appellant to pay his wife a lump sum of $1,000.00, and a further $500.00 for costs. He made no order concerning either custody or support for the oldest child, who at that time was living in British Columbia.
[3] The following facts are not disputed. The Appellant made the payments ordered by Klebuc J., and he continued to make payments to his wife at the same rate of $1,094.00 per month throughout 1996 – a total of $13,128.00. The oldest child returned from British Columbia to live with her mother in the latter part of 1996, and so the Appellant increased his support payments to $1,453.00 per month, beginning in January 1997. He paid that amount each month in 1997 – a total of $17,436.00.
[4] It is also not disputed that in computing his income the Appellant is only entitled to deduct the payments under paragraph 60(b) of the Act if they were periodic in nature, and made pursuant to either a court order or a written agreement. Clearly the amounts of $1,000.00 and $500.00 were not deductible, because they were not periodic. This was acknowledged by the Appellant at the hearing on October 6, and so I dismissed the appeal for the 1995 taxation year at that time. The payments made in 1996 and 1997 were periodic. The issue with respect to them is whether they were made pursuant to a court order or a written agreement.
[5] Mr. Alm, for reasons that are not relevant here, changed solicitors early in January 1997. Several letters were exchanged among the lawyer representing his wife and the first and second lawyers representing the Appellant. These, together with the Appellant's testimony, make it clear to me that the Appellant, his wife and the lawyers had proceeded on the incorrect assumption that the Order of Klebuc J. continued to require the Appellant to make payments long after the end of 1995. Nevertheless, it is quite clear from the words of that Order that it ceased to operate at the end of 1995. To succeed in his appeals for 1996 and 1997, therefore, the Appellant must establish either that the payments were made in those years pursuant to some other Order, or that there was a written agreement pursuant to which they were made. The Appellant was unable to bring any evidence that might be construed as either a Court Order or a written agreement made prior to the end of 1996, and so the appeal for that year must also be dismissed.
[6] In December 1996, the wife's solicitor, Ms. Prisciak, brought a motion for an Order fixing interim maintenance for the oldest child at $450.00 per month, and other interim relief. On December 30, the Appellant instructed his solicitor, Ms. Ferguson, to offer to pay $1,453.00 per month in total for the three children, beginning on January 1, 1997. Ms. Ferguson apparently made that offer by telephone, because on January 2, 1997 the wife's solicitor sent her the following letter:
Quon Ferguson MacKinnon Walters
Barristers and Solicitors
704, 224-4th Avenue South
Saskatoon, SK S7K 5M5
Attention: Ms. Debra E. Ferguson
Dear Madam:
RE: Aaston v. Alm
Your file: 6074
I have spoken to our client regarding our recent conversation. We are prepared to adjourn this matter until January 13, 1997 on the basis that Mr. Alm will commence paying $1,453.00 per month as of January 1, 1997.
The issues left to be resolved on the January 13 date would be:
1. Whether a lump sum payment for Corry will be made by the Court;
2. The interim distribution of matrimonial property.
Please contact me to confirm these terms and that you have contacted the Court and advised of the adjournment. Thank you for your attention to this matter.
Yours truly,
ROBERTSON STROMBERG
Per:
"Karen Prisciak"
KAREN PRISCIAK
On January 6, 1997, Ms. Ferguson replied as follows:
Dear Madam:
RE: Aaston v. Alm
Our file 6074
Your file 25415.1
______________________
Please find enclosed herewith the following:
1. Our client's cheque in the amount of $1,453.00 representing the maintenance for January, 1997;
2. Draft Order which I intend to file with respect to the monthly maintenance;
3. Vehicle registration with respect to the 1986 Buick Lesabre that is in your client's possession, which the parties agreed that your client would retain, with the Bill of Sale portion completed by Mr. Alm.
Please confirm forthwith that the Order is acceptable to you and we will arrange to file the same with the Court.
Please arrange with Ms. Aaston to have the vehicle registration changed to her name upon renewing the plates. If she has a problem with this, please contact me.
Yours truly,
Quon Ferguson MacKinnon Walters
Per:
Debra E. Ferguson
Encl.
[7] Mr. Alm's cheque which was enclosed was dated January 2, 1997. The draft Order which accompanied the letter is not in the evidence. A later draft, prepared by Mr. Kendall, the Appellant's new solicitor, is in evidence, and it would have provided for the Appellant to pay the wife interim maintenance for the children of $1,453.00 per month. It was sent by Mr. Kendall to Ms. Prisciak on January 29, 1997, together with a letter which read:
Further to our attendance in Court on Friday, January 24, 1997, I am enclosing herewith a consent Order. Please consent as to its form and return the same to our office as soon as possible.
For reasons that were not explained in the evidence, this Order was never taken out. It is unfortunate that none of the solicitors involved in this matter were called to give evidence. However some further light is shed by a letter dated January 16, 1997 from Ms. Prisciak to Mr. Kendall. The relevant part reads:
It is our position that the issue of child maintenance with regard to Corry Dawn Alm was settled by Mr. Alm's previous solicitor. Ms. Ferguson made representations to the Court that we had settled on maintenance payable for the total sum of $1,453.00. We attach a photocopy of a cheque signed by Mr. Alm recognizing his January child support payment. If your client is reneging on this position, we will ask that the matter of the maintenance be adjourned to another date as we will hire another solicitor in order that I may provide Affidavit evidence to the Court. In addition, Mr. Alm's previous solicitor advised the Court that the issue of child maintenance had been resolved between the parties with regard to Corry Dawn Alm.
[8] Bowman A.C.J. recently considered in Foley v. The Queen[1] the question whether the requirement for a written agreement may be satisfied by an exchange of correspondence between the solicitors for husband and wife. I agree with his conclusion, reached after a thorough review of the cases, that it can be. For there to be deductibility, however, there must truly be an agreement which required the payments to be made, and it must be expressed in writing. Ms. Prisciak by her letter of January 2 expresses the willingness of her client to accept $1,453.00 per month for interim maintenance, beginning with the month of January, 1997. It makes clear that the remaining issues between the parties, if this is accepted, would not include any issue as to maintenance. Ms. Ferguson's letter of January 6, in the paragraph numbered 1, accepts that offer. They were both acting as agent of their respective clients. Insofar as the interim maintenance issue is concerned, there is an agreement, and its terms are to be found in the letters – Mr. Alm will pay $1,453.00 per month beginning in January 1997.
[9] In Hodson v. The Queen,[2] Heald J.A., speaking for a unanimous Court, said:
... Parliament has spoken in clear and unmistakeable 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. ...
[10] In the present case, it is perfectly clear from the two letters that Mr. Alm has agreed to pay and his wife has agreed to accept $1,453.00 per month as interim child maintenance. There is nothing loose or indefinite about the arrangement; it is in the letters. That this is so is confirmed by Ms. Prisciak's letter of January 16. The Appellant is entitled to succeed in the appeal for 1997.
[11] I cannot leave this matter without expressing some dismay that Mr. Alm has been left in the position of paying more than $13,000.00 in interim maintenance for his children in the year 1996 for which he will not receive any deduction, because neither an order of the Court nor a written agreement required him to pay. He simply fulfilled his parental responsibility without being coerced. It is clear that the amount of the interim maintenance was settled on the assumption that it would be taxable to the recipient and deductible to him. The exhibits at trial include a copy of his wife's income tax return for 1996, and it establishes that she did in fact declare the payments as income. Mr. Alm does not appear to have been well served by the legal profession in this matter. If I had the power to do so, I would certainly relieve him of the unfair burden of the tax on his payments made in 1996. The authority to remit the tax lies with the Governor in Council, on the recommendation of the Minister of National Revenue.[3] I recommend that that be done.
[12] The appeal for the 1996 taxation year is dismissed. The appeal for the 1997 taxation year 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 a deduction under paragraph 60(b) in the amount of $17,436.00.
Signed at Ottawa, Canada, this 12th day of January, 2001.
J.T.C.C.