Date: 20010822
Docket: 2000-3093-IT-I, 2000-3094-IT-I
BETWEEN:
ZALMAN AMIT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
(Judgement rendered orally on July 27, 2001, at Montreal, Quebec, and subsequently edited at Ottawa, Ontario, on August 22, 2001.)
Rip, J.
[1] These are appeals from assessments made by the Minister of National Revenue ("Minister") under the Income Tax Act ("Act"). The issue in the appeals of Zalman Amit from income assessments for the 1997 and 1998 taxation years is whether he is permitted to deduct, in computing his net income, money he paid as alimony or other allowance to an institution for intellectually handicapped persons.
[2] The basic facts in these appeals are not in issue. The appellant was married to Bracha Savion in 1955 and had two children. One child, Rotem, now 41 years old, was born prematurely and placed in an incubator. Due to the oxygen then used in the incubator, the child suffered neural damage as well as damage to the optic nerve resulting in blindness in one eye and limited vision in the other eye.
[3] The appellant and his former wife were divorced in 1980. Attached to the Decree Nisi of Divorce and Decree Absolute of Divorce, as granted by the Superior Court of Quebec, was a Memorandum of Agreement dated December 15, 1979, which I sometimes refer to as the "first agreement" between Dr. Amit and Bracha Savion, the relevant portion of which included the following in paragraph 2:
THAT AMIT shall, until the Divorce Decree is made absolute, pay to SAVION a monthly alimentary pension of $2,500.00 for SAVION and ROTEM AMIT, issue of the marriage of the parties;
THAT upon the Divorce Decree being declared absolute, AMIT undertakes to pay to SAVION an alimentary pension of $30,000.00 per year, payable $2,500.00 per month, for SAVION and for ROTEM AMIT, issue of the marriage of the parties;
[4] When Rotem turned 18 years of age, the former Mrs. Amit, with the approval of the appellant, found an institution in Israel in which to place Rotem. This was in 1978. The name of the institution is Kfar Tikvah, translated as"Village of Hope", which I refer to in these reasons as "Village". Originally, the cost for Rotem was $500 US per month. During the years in appeal, the amount was $1,700 Canadian.
[5] On or about June 23, 1981, the appellant and Ms. Savion agreed that "in addition" to the alimony the "basic amount of $30,000 per year" set out in the first agreement, the parties understood that the following would also be included:
1) reasonable cost of living increases calculated annually;
2) any exceptional expenses for either Bracha or the dependent daughter Rotem to be negotiated at the time they were incurred, particularly but not exclusively those which are determined by the medical needs of either Bracha Savion or Rotem Amit.
[6] I refer to this agreement as the second agreement. It was apparently reduced to writing, although no executed copy was produced at trial. The parties agreed that it was a bona fide agreement. The Minister in assessing, assumed the existence of the second agreement.
[7] According to Dr. Amit, he and his former spouse decided to enter into the second agreement, because the Village informed them that the cost of maintaining Rotem would "increase" and Ms. Savion asked for more money to meet expenses. The second agreement was intended to factor in the daughter's and former wife's needs.
[8] By 1980, Ms. Savion was experiencing physical problems due to multiple sclerosis. Shortly thereafter, she moved to Israel to be closer to Rotem. Even before leaving for Israel, Ms. Savion required medical help in Montreal.
[9] Ms. Savion cares for Rotem. They speak almost daily on the telephone. Rotem visits her mother on weekends and holidays. If the hospital requires permission to undertake a procedure on Rotem, Ms. Savion's consent is required. Ms. Savion currently lives in a nursing home in Israel and I have concluded and find that Ms. Savion has custody of Rotem.
[10] Ms. Savion's physical illness prevented her at times to attend at the bank to deposit the montly cheques she was receiving from the appellant. The Village required timely monthly payments. Accordingly, Dr. Amit testified, Ms. Savion asked him in 1981 or 1982 to send the money directly to the Village on her behalf and he agreed. Since then he has made payments directly to the Village.
[11] In 1997, Ms. Savion, according to the appellant, was advised by a financial advisor in Israel to obtain a lump sum payment for her benefit instead of monthly payments. Dr. Amit agreed and the parties entered into an agreement, which I referred to as the "third agreement" as follows:
In accordance with this agreement Zalman Amit will transfer an amount of 60,000 (sixty thousand) Canadian Dollars to the possession of Bracha Amit and Achmed Fadila.
As a result of the transfer of this amount (sixty thousand Canadian Dollars) Zalman Amit will be from now on released from the need to make all the monthly payments for the alimony and maintenance of Bracha Amit.
[12] And I should say that Bracha Amit is Ms. Savion. And the last relevant paragraph is:
From the moment of receipt of sixty thousand (60,000) Canadian Dollars all the financial connection and financial obligations between Bracha Amit (Achmed Fadila) and Zalman Amit will be terminated.
[13] Now, apparently, Achmed Fadila is the financial advisor of Ms. Savion. Why he is in the agreement, I have no idea. Dr. Amit signed the document on April 27, 1997 and Ms. Savion executed the document with that of her purported advisor on May 2, 1997.
[14] In 1980 and 1981, Revenue Canada sent Dr. Amit questionnaires concerning the deductions he claimed for alimony in his 1979 and 1980 tax returns. The replies were completed by his accountant, Mr. Morton Katz, c.a., who testified at trial. With respect to the 1980 taxation year, Mr. Katz attached to the questionnaire, for reply, a breakdown as to whom alimony payments were made in that year. This included the amount of payments directly to Ms. Savion, amounts paid to Villa Mount-Royal, in Montreal, for the care of Ms. Savion and amounts in US and Canadian currency paid to the Village for Rotem. These amounts and the amounts for subsequent years appear to have been accepted as alimony payments by the taxing authority, as claimed by the appellant.
[15] It is Dr. Amit's view that the agreement of 1997, the third agreement, only affects Ms. Savion's right to alimony, but does not affect the rights of their daughter under the agreements of December 15, 1979 and June 23, 1981. Dr. Amit is still liable to make payments for the benefit of Rotem notwithstanding that he is no longer liable to his former spouse for her maintenance. In fact, the payments to Ms. Savion have ceased. He has, however, continued making payments to the Village in the same manner he has since the mid 1980's. It is these payments that are in issue.
[16] Each month, since the mid 1980's, the appellant or his present spouse, on his behalf, has sent money to the Village on a monthly basis. At the same time, until May 1997, Dr. Amit's current wife, who takes care of the family finances, sent Ms. Savion an explanation how her alimony was allocated, that is how much was sent to the Village and how much was sent to her. Ms. Savion has never complained and, until the years in appeal, the tax authority has not questioned the "bona fides" of the alimony payments to the Village.
[17] Mr. Mostovac, the appellant's counsel, submitted that the payments the appellant made to the Village were an allowance made to Ms. Savion, since she had the discretion to direct Dr. Amit to make the payments directly to the Village. Counsel referred to Gagnon v. The Queen, 86 D.T.C. 6179 (S.C.C.). Since the agreement was entered into by the parties before 1986 the amounts paid to the Village were deducted from the amount of alimentary allowance otherwise payable to Ms. Savion, with her express concurrence. The agreement of 1979, the first agreement, required the appellant to pay a fixed amount to Ms. Savion for alimony and support and for Rotem. Only one of the couple's two children receives any support from the appellant and this is because of Rotem's special circumstances. The agreement of 1981 only "extends", to use counsel's wording, the previous agreement "to cover what was not covered", the cost of living and the exceptional expenses. The second agreement does not modify the previous agreement.
[18] The third agreement of 1997, freed Dr. Amit from paying anything to Ms. Savion for her benefit, but does not affect his payments for Rotem. As costs for the Village increased, so do payments for Rotem's benefit. And the taxing authority recognized these payments to the Village in the previous years to be a bona fide alimony payment.
[19] The Minister, appellant's counsel suggested, would not have reassessed his client if the third agreement stated that subsections 60.1(2) and 56.1(2) of the Act applied to the amounts payable, thus deeming Ms. Savion to have discretion. His view is that Ms. Savion had discretion as to the use of the funds in any event and requested her former husband to pay the money to the Village on her behalf.
[20] The Crown's position is that, once the third agreement came into force on or about May 2, 1997, it modified the previous agreements as of that day and any payments made by Dr. Amit in 1997 and 1998 are subject to the new regime of support payments. There was a "commencement date" within the meaning of subsection 56.1(4) and since no amount was specifically identified for Rotem in any of the agreements, the first, second or third agreements, the amount in issue was a "child support amount" as defined in subsection 56.1(4).
[21] In my view, the Minister's position is wrong. The third agreement, that is the one dated April 27th and May 2, 1997 simply releases the appellant, upon Ms. Savion's receipt of the $60,000, from any alimentary allowance owing to Ms. Savion. His obligation to Rotem was not affected. The agreement in 1997 did not change the child support amount agreed to in the earlier agreements by the appellant and his former wife, and, therefore there is no triggering of a commencement date for child support purposes. Dr. Amit is not affected by the new regime of such child support payments.
[22] In arriving at this conclusion, I was concerned that there may be a question that the second agreement, in particular clause 2 of the second agreement, does not oblige the appellant to pay the increased cost of living expenses and medical expenses. The clause refers to the parties negotiating the amount Dr. Amit would pay for these items. However, I am satisfied that he, indeed, was engaging himself to pay the increases.
[23] In Les Obligations, 5e édition par Jean-Louis Baudouin et Pierre-Gabriel Jobin, (Cowansville (Québec) Yvon Blais Inc., 1998) the authors are concerned whether such a clause may not create legal obligations, but merely create an obligation to negotiate. For example, at page 185, they write the following at paragraph 171:
"Invitation à contracter" L'offre se distingue de la simple invitation à contracter ou à entrer en pourparlers dans le but éventuel de conclure un engagement. Il est parfois difficile de distinguer ces deux notions et il faut alors examiner la situation de fait, en regard des caractères spécifiques à l'offre. L'offre, tout d'abord, doit être sérieuse, ferme et précise. L'offre faite pour plaisanter, pour explorer le terrain d'une entente éventuelle ou qui est trop imprécise n'est pas une manifestation d'une volonté claire de conclure un contrat. L'offre, ensuite, doit contenir tous les éléments essentiels du contrat projeté pour permettre l'adhésion de l'acceptant. Si la proposition oblige la personne à qui elle est faite à une négociation, à une demande de renseignements ou de précisions sur ces éléments, elle ne constitue pas alors une offre véritable, mais une simple invitation; ainsi, offrir de vendre un immeuble, mais sans en préciser le prix, de louer un locale sans indication du terme du bail et du prix du loyer. Si, dans ces hypothèses, l'acceptant propose un prix, c'est lui qui fait alors une offre véritable, si tant est que les autres conditions essentielles soient réunies.
Par contre, il n'est pas indispensable que l'offre porte sur toutes les dispositions accessoires (transfert des assurances, par exemple). Les parties peuvent, en effet, atteindre un accord de principe par l'acceptation des éléments essentiels et réserver à plus tard leur accord sur les éléments secondaires. Lorsque l'offre originale est suivie d'une contre-proposition, pour déterminer le moment où l'accord de volonté s'est réalisé, on se reporte à la dernière des propositions qui contenait les éléments essentiels du contrat projeté et qui a été accepté (art. 1389 C.c.).
[24]It may thus be argued that clause 2 of the second agreement does not create any enforceable legal obligation. However, a distinction must be drawn between a clause which stipulates that the parties will negotiate whether the extraordinary expenses will be defrayed by Dr. Amit and a clause which states, as clause 2 does, that extraordinary expenses will be included, their amount to be negotiated at the time when they are incurred. In my view, the second scenario creates a legal obligation to pay the amounts and only a secondary element of the exact amount is left over to be negotiated at the time when the expense is incurred. Again, it may be argued that the amount to be paid is of the essence of the contract, that is the contract cannot exist without the amounts of the extraordinary expenses being determined or determinable.
[25]Provisions of the Civil Code of Quebec assist me in interpreting this agreement and even the third agreement. The provisions of the Civil Code of Quebec offer great flexibility in determining the intention of the parties. Article 1425, for example, refers to the subjective intention of the parties rather than to the written text or other formal expression of the parties' intention.
Dans l'interprétation du contrat, on doit rechercher quelle a été la commune intention des parties plutôt que de s'arrêter au sens littéral des termes utilisés.
[26]Clearly, the parties, here, have subjected themselves to the agreement in a way which confirms their intention to be governed by an obligation of Dr. Amit to pay for the extraordinary expenses of his daughter, namely, the expenses for the institution in which she was placed. This idea is reflected in article 1426 of the Civil Code of Quebec.
On tient compte, dans l'interprétation du contrat, de sa nature, des circonstances dans lesquelles il a été conclu, de l'interprétation que les parties lui ont déjà donnée ou qu'il peut avoir reçue ainsi que des usages.
[27]Thus, it is relevant, in my view, to consider how the parties interpreted the clauses of the second and third agreements (whether they demonstrated their will to be bound by certain obligations), having regard their behaviour. Finally, in interpreting the agreement in question in a way that creates only an obligation to negotiate is to deprive the clause of its meaning and creates a statement without any enforceable legal effect. This would seem contrary to the intention of the parties and, furthermore, would contravene the interpretation, which the parties gave this clause over the years, as implied from the way they acted. Article 1428 of the Civil Code of Quebec reflects this concept:
Une clause s'entent dans le sens qui lui confère quelque effet plutôt que dans celui qui n'en produit aucun.
[28]I think the same reasoning, as I mentioned, should apply to the third agreement, that of May 2, 1997. Dr. Amit continued to make payments for Rotem after the execution of this third agreement as well. It was his understanding, and that of his former wife, I think I can infer, that only payments for her benefit would cease, but not that for Rotem.
[29]Finally, the payments in issue, while made to third parties, were not what are technically third party payments. Ms. Savion directed Dr. Amit to make the payments to the Village as a convenience to herself. She always retained the discretion to withdraw her instructions to Dr. Amit, have him pay her directly and for her to make the payments to the Village. That Ms. Savion delegated Dr. Amit to make the payments, or for Dr. Amit to act as a mandatory for Ms. Savion to make the payments, does not, in my view, derogate for Dr. Amit's right to deduct the payments in computing his net income. The amounts of the payments to the Village were amounts of alimony he was obliged to make to Ms. Savion for the benefit of Rotem. (I express no view whether this is or is not the law with respect to agreements subject to the new regime.)
[30]The appeals are allowed with costs.
Signed at Ottawa, Canada, this 22nd day of August 2001.
"Gerald J. Rip"
J.T.C.C.