Shaw v. The Queen

Shaw v. The Queen Court (s) Database Tax Court of Canada Judgments Date 2007-03-15 Neutral citation 2007 TCC 148 File numbers 2006-1671(IT)I Judges and Taxing Officers Joe E. Hershfield Subjects Income Tax Act Decision Content Docket: 2006-1671(IT)I BETWEEN: TIMOTHY C. SHAW Appellant, and HER MAJESTY THE QUEEN, Respondent. ____________________________________________________________________ Appeal heard on March 1, 2007 at Toronto, Ontario Before: The Honourable Justice J.E. Hershfield Appearances: For the Appellant: The Appellant himself Counsel for the Respondent: Sonia Akibo-Betts ____________________________________________________________________ JUDGMENT The appeal from the reassessment made under the Income Tax Act for the 2004 taxation year is allowed and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with and for the reasons set out in the attached Reasons for Judgment. Signed at Ottawa, Canada, this 15th day of March 2007. "J.E. Hershfield" Hershfield J. Citation: 2007TCC148 Date: 20070315 Docket: 2006-1671(IT)I BETWEEN: TIMOTHY SHAW Appellant, and HER MAJESTY THE QUEEN, Respondent. REASONS FOR JUDGMENT EDITED FROM REASONS DELIVERED FROM THE BENCH MARCH 8, 2007 Hershfield J. [1] This is an appeal of a reassessment of the Appellant's 2004 taxation year which denied a full deduction of support payments made to his wife from whom he separated in 1998. [2] The amount claimed was $81,150.00. This included $5,200.00 for payments admitted at the hearing to have been made in 2003. On being referred to the legislative provision allowing deductions for support payments, the Appellant acknowledged that paragraph 60(b) of the Income Tax Act ("Act") did not allow the deduction of support amounts paid before the end of the year in which they are claimed if they were deductible in a previous year. That is, the $5,200.00 amount having been paid in 2003 would not be deductible in 2004 if it was deductible in 2003. In this case the deductibility of the support amounts in each of 2003 and 2004 turn on the same point, namely whether they were paid under a particular agreement asserted by the Appellant to be a written agreement. Accordingly, if the support amount paid in 2003 is deductible by reason of having been paid under that agreement it cannot be claimed in 2004 since it would be deductible in the prior year. [3] Of the remaining amount claimed, the Respondent only allowed $61,650.00. That leaves $14,300.00 still in dispute. This amount reflects the 11 months (January - November 2004) in respect of which the Appellant claimed $6,300.00 per month and the Respondent allowed $5,000.00 per month. [4] There is no dispute that the Appellant paid the extra $1,300.00 per month from January 2004 through November 2004. The sole issue is whether that additional amount was paid under a written agreement as required by subsection 56.1(4) where "support amount" (the amount deductible under paragraph 60(b)) is defined as an amount receivable under an order or under a written agreement. [5] There are four agreements to consider. [6] The first is a separation agreement prepared by the Appellant's lawyer in December 1998. While that agreement was never signed by either the Appellant or his wife, it was, according to the Appellant's testimony, an agreement under which he was obligated to make payments from January 1999. The relevant support payment terms were set out in paragraph 6.1 of the 1998 agreement which provide as follows: (a) commencing on January 1, 1999 and on the first day of each subsequent month, the sum of $3,500.00 per month until December 1, 1999; (b) on or before December 31, 1999, the sum of $18,000.00; (c) commencing on January 1, 2000 and on the first day of each subsequent month, the sum of $5,000.00 per month until August 1, 2003; and (d) commencing on September 1, 2003 and on the first day of each subsequent month, the sum of $6,300.00 per month. These terms were complied with until an agreement in 2004 increased support to $6,650 per month. [7] A second agreement was entered into in April 2000. This agreement was labelled an interim agreement and provided for interim support in the amount of $5,000.00 per month. This agreement reflects compliance with the 1998 agreement which provided that commencing January 1, 2000, support was to increase from $3,500 per month to $5,000 per month. Having been entered into in April 2000, it speaks of the $5,000 per month as a future obligation and confirms that the $5,000 monthly payments from January to March, 2000 are to be considered to have been paid pursuant to the April 2000 agreement. The Appellant acknowledged that this agreement was entered into to ensure the tax deduction of $5,000 per month. This suggests that he was concerned that the 1998 agreement may not have been sufficient. [8] The next agreement is the separation agreement entered into and executed in November 2004 which provided for support of $6,650 per month commencing December 1, 2004. This agreement speaks to payments beyond the period under appeal and makes no mention of the payment obligation prior to December 1, 2004. I also note that this agreement appears to have been taken from an earlier draft upon which handwritten changes were made on the December 2004 final version. The earlier draft appears to have been prepared in September 2003 but does not have the relevant term contained in the 1998 agreement, namely paragraph 6.1(d) dealing with the step-up in support from $5,000 to $6,300 per month. This earlier draft was never signed, agreed to or acted upon. [9] There is a fourth agreement which was signed January 5, 2006. This agreement signed by the Appellant and his wife sets out the support obligation at $6,300.00 from September 2003 until November 2004. This reflects the obligation set out in the 1998 agreement. However, this 2006 agreement does not say that the obligation is pursuant to that 1998 agreement. Rather, it says that these sums, already paid, are to be considered as paid under the 2006 agreement. This would have assisted the Appellant had it been executed 5 days earlier; i.e. in 2005. An agreement in 2005 can deem payments in a previous year (i.e. payments in 2004) to be payments made under a written agreement even though that agreement was entered into later. Subsection 60.1(3) allows this retroactive application but only going back one year. The 2006 agreement was therefore 5 days too late to assist the Appellant. [10] The Appellant said he was dealing with this issue with Canada Revenue Agency ("CRA") officials for a year and no one had advised him of this point. He was outraged that the CRA could have resolved this whole matter very simply by telling him of the subsection 60.1(3) option on a timely basis. I agree with the Appellant. The CRA should assist taxpayers in these circumstances. The Appellant's wife declared the amounts deducted and fully agreed that the Appellant was liable to pay her the $6,300 as and when paid. I see no excuse for the CRA not better assisting the Appellant. [11] Nonetheless the Appellant argues that the amount at issue (the $6,300.00 per month claimed versus $5,000 per month allowed for January - November 2004) was paid under the terms of the 1998 agreement which was a written agreement albeit unsigned. [12] The Respondent raises an issue as to whether there was an agreement at all in 1998 and argues that even if there was an agreement in 1998, it is not a written agreement unless it is signed. Respondent's counsel presented two authorities for this position which I will deal with later in these Reasons. [13] In respect of the former issue, namely: whether the 1998 document is an agreement, the Respondent argues there is only a draft or proposed agreement that never crystallized into an actual agreement. Respondent's counsel argues that the cover letter sending the 1998 agreement to the Appellant indicates it was sent for review and comment. This suggests that it was a proposed or draft agreement only. Further, if it was meant as an agreement, why did they enter into the April 2000 agreement which dealt with the support payments to ensure they were being made under a written agreement. If they intended or believed that the 1998 agreement was a "written agreement" why did they need the 2000 agreement? The Respondent contends as well that the 2004 agreement, which makes no mention of the $6,300 obligation, stands together with the 2000 agreement as the only agreements. As to the 2006 agreement, Respondent's counsel argues that it does not say that the $6,300 payments were made under the 1998 agreement because the parties recognized it did not exist. [14] I will deal first with the issue as to whether a written agreement has to be executed to be a written agreement under which a payment is made. The Respondent relies on Paré v. R.[1] In that case, the Crown took the position that a written summary of agreements resulting from mediation was a written agreement even though unsigned. The Crown's position derived largely, it seems, from the fact that the support terms set out in that written summary had been complied with. The judge in Paré noted that the written summary of agreements expressly set out that it was not binding on the parties. This distinguishes that case from the case at bar in a material way. [15] Nonetheless, the judge in Paré goes on to examine other cases that may cast doubt on the relevance of such distinction. He cites two Tax Review Board cases in which Guy Tremblay ("Tremblay") clearly finds that compliance with a written but unsigned agreement only proves a verbal contract.[2] The reasoning for this conclusion is set out in Jacoby along the following lines. When the lawmaker goes to the trouble of saying "written agreement" and provides that only a written agreement can take the place of an order of a competent tribunal then it must be taken that the written agreement must necessarily have some comparable degree of formality such as, at the least, being signed. It is reasoned that to provide that the agreement need be both written and signed would be redundant. These conclusions are not drawn without thoughtful analysis of a number of arguments that would suggest the words "written agreement" do not in themselves import an execution requirement. Reference is made for example to Halsbury's Laws of England and to the Interpretation Act and to provisions of the Act and regulations that refer expressly to the need for signatures.[3] Such references might have led one to conclude that a contract does not require execution to be a written contract. Still, Tremblay concludes that the subject provision must be narrowly construed to give effect to its objects. [16] I am far from convinced that the words of the subject provision need to be so narrowly construed to give effect to its objects. It is, in part, my experience on this Court that leads me to this conclusion. Having heard the vindictive, hateful, wholly conflicting and unreliable testimony of separated couples, it is clear that administering support cases would be impossible but for the requirement of a bright line test of the actual legal obligation governing support. That in itself does not require a finding that Parliament must have intended that a plain, less formalistic, meaning of the words "written agreement" be cast aside. It is clearly possible to have and give effect to an unsigned enforceable written agreement, under which payments are required to be made, that does not infringe on the bright line that Parliament was intending to invoke. Indeed a construction of the Act that allows mutually intended results in cases where the parties rely on the terms of a written agreement which they both regard as legally enforceable, whether signed or not, is surely a construction that must be assumed to be within the scope of parliamentary intentions. No brighter line need be drawn in cases such as this where at no time was there a dispute or conflicting evidence of what the parties intended in terms of support payment obligations. At the end of the day, a signature does little more than evidence a legal intent to be bound by the written obligations to which that signature attaches. Need for such evidence surely depends on the facts of each case. Following this approach the 1998 written document is in my view a written agreement under which the subject support was payable during the subject period. [17] While I do not agree that the subject provision must be so narrowly construed as to require execution in all cases, I note that a signature, if required, need not be on the written agreement itself as long as it can be referred back or joined to it. It is clear from a wealth of jurisprudence (going back in Canada at least to the Supreme Court of Canada decision in O'Donohoe v. Stammers[4]) that a contract need not be in a single document or in any particular form. It may be constructed from separate but connected writings; signed and unsigned documents may be read together; and, oral testimony may be admitted to show the connection between the documents where that connection could be found as a matter of fair and reasonable inference. Such documents brought together to include a signature not only form a written contract, but an executed written contract. Even a signed cheque from the Appellant for the support amount of $6,300 per month would be a signature that can only refer back to the 1998 agreement. A signed deposit slip at a bank or the endorsement on a support cheque would be a signature of his wife that would, in this case as a matter of fair inference, be found to attach itself to the 1998 agreement. There is uncontradicted evidence of payments by cheque that were deposited in compliance with the mutually agreed written obligation set out in the 1998 agreement. As well, there is the wife's signed letter to the CRA in November 2005 acknowledging support payments in 2004 that included the $6,300 payments. As a matter of fair inference such signature also attaches itself to the 1998 agreement. Accordingly, at law, it is open for me to find that the 1998 agreement as relating to support obligations was a fully executed agreement in writing and I make that finding. [18] While I have found no direct reference to the doctrine of joining documents, as set out in O'Donohoe, in income tax cases, I note that in Grant v. Canada[5] this Court combined a cheque and a lawyer's letter to find a written agreement. [19] In Foley v. Canada[6], this Court held that correspondence exchanged between counsel constituted a written agreement for the purposes of deductibility under paragraph 60(b) of the Act. That case put more emphasis on written commitments that are legally binding and less emphasis on formalities as may have been required when tax law required a "written separation agreement". [20] In the case at bar, there is in my view a written agreement in 1998 as to the support payable for the period January - November 2004. The parties intended to be legally bound by the provision in that written document that provided for support payment "commencing on September 1, 2003 and on the first day of each subsequent month the sum of $6,300.00 per month agreement". The 2000 agreement does not have to be and should not be seen as denying this obligation in light of the conduct of the parties including signing cheques, tax reporting by both parties in total accord with the 1998 provision and the uncontradicted testimony of the Appellant. The 2000 agreement is not incompatible with the 1998 agreement and the evidence does not support the view that it was meant to replace it or eclipse its existence. That it was intended to ensure the deduction of the $5,000 payments was based on an assumption that it may be necessary to have such a document. Whether such assumption was right or wrong is essentially the question I have to decide. That it was a wrong assumption should not impact my finding that the parties intended to be legally bound by the 1998 written agreement as to support obligations during the subject period. Further, the evidence is that the 2000 agreement was not complied with after August 2003. It was the 1998 agreement that was complied with. This only serves to confirm the Appellant's testimony that the 2000 agreement was never intended to govern payments after August 31, 2003. [21] As to the 2004 agreement, I draw no negative inferences from the fact that an earlier draft of it did not contain the support payment increase from $5,000 to $6,300 per month. The 2004 agreement speaks from the time it was entered into. Support payments continued under the 1998 agreement at $6,300 per month until December 1, 2004 when the going forward support amount became $6,650 per month under the 2004 agreement. [22] As to the 2006 agreement, this is a frustrated attempt to change reality by attempting to fall within a deeming provision of the Act. The reality remains unchanged. The payment was in fact made under the 1998 written term governing support payments from January - November 2004. That severed term was an agreement in writing intended to be legally binding. It was not replaced or repudiated until December 1, 2004 when the 2004 agreement was entered into. That is all that is required to afford the Appellant the benefit of the deduction claimed excepting the $5,200 referred to at the outset of these Reasons. [23] The Appeal is allowed accordingly. Signed at Ottawa, Canada, this 15th day of March 2007. "J.E. Hershfield" Hershfield J. CITATION: 2006TCC148 COURT FILE NO.: 2006-1671(IT)I STYLE OF CAUSE: Timothy Shaw and Her Majesty the Queen PLACE OF HEARING: Toronto, Ontario DATE OF HEARING: March 1, 2007 REASONS FOR JUDGMENT BY: The Honourable Justice J.E. Hershfield DATE OF JUDGMENT: March 15, 2007 APPEARANCES: For the Appellant: The Appellant himself Counsel for the Respondent: Sonia Akibo-Betts COUNSEL OF RECORD: For the Appellant: Name: Firm: For the Respondent: John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada [1] 2003 TCC 869 (informal procedure). [2] Milburn v.M.N.R., 79 DTC 24 and Jacoby v. M.N.R., 81 DTC 843 (Tax Rev. Bd.). [3] Jacoby, supra at paragraphs 5.04.5 and 5.04.6. [4] (1884), 11 SCR 358; see also Doran v. McKinnon (1916), 53 SCR 609. [5] [2001] 2 CTC 2474. [6] [2000] 4 CTC 2016.