Tax Court of Canada Judgments

Docket: 2003-2122(IT)I

BETWEEN:

JOHN THOMSON,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on June 1, 2004 at St. Catharines, Ontario

Before: The Honourable Justice G. Sheridan
Appearances:
For the Appellant:	The Appellant himself
Counsel for the Respondent:	Joanna Hill

JUDGMENT

          The appeal from the reassessment made under the Income Tax Act for the 2000 taxation year is allowed, with costs, and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that there was a "written agreement" pursuant to which the Appellant paid child support in the taxation year.

Signed at Ottawa, Canada, this 26th day of November, 2004.

"G. Sheridan"

Sheridan, J.

Citation: 2004TCC772

Date: 20041126

Docket: 2003-2122(IT)I

BETWEEN:

JOHN THOMSON,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Sheridan, J.

[1]      The Appellant, John Thomson, appeals from a reassessment of his 2000 taxation year in which the Minister of National Revenue disallowed his claim to deduct amounts paid to his former spouse Annette Thomson (now Bellinghoffen) for the support of their daughter. It is agreed that John and Annette have lived separate and apart since 1996. It is further agreed that the $3,600.00 Annette received in 2000 was not paid pursuant to a court order. The only issue, then, is whether this amount was paid pursuant to a "written agreement" as contemplated by subsection 56.1(4) of the Income Tax Act, the relevant portions of which are:

"support amount" - "support amount" means an amount payable or receivable as an allowance on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and children of the recipient, if the recipient has discretion as to the use of the amount, and

(a) the recipient is the spouse or common-law partner or former spouse or common-law partner of the payer, the recipient and payer are living separate and apart because of the breakdown of their marriage or common-law partnership and the amount is receivable under an order of a competent tribunal or under a written agreement; ... [Emphasis added.]

[2]      On March 3, 1997, John and Annette met with the family court duty officer assisting them with obtaining a court order setting what they had agreed to regarding the care and support of their four-year-old daughter. The officer provided them with a standard form Minutes of Settlement[1] in which she recorded the terms of their agreement: that John and Annette were to have joint custody of their daughter, her primary residence being with Annette with reasonable access accorded to John. To this she added another clause stating that the parties agreed "to withdraw the request for child support at this time". These terms formed the court order issued on March 3, 1997. Child support was withdrawn from the Court's consideration because on that same day, the Thomsons, on the advice of the officer, had set out their agreement regarding child support in another court-provided standard form document entitled "Separation Agreement".

[3]      As a newly single parent, Annette was around this same time seeking family benefits known as "Mother's Allowance"; under this provincial scheme, the Mother's Allowance for which a qualifying mother is otherwise eligible is reduced by the amount of child support she receives. Annette was required to file with the relevant government agency proof of the monthly payment of $275.00 she was receiving from John; it was for this purpose that the Separation Agreement was recommended to her by the court officer. Although not mentioned in the Separation Agreement and not known to Annette at the time, a qualifying mother ceases to be eligible for Mother's Allowance upon her remarriage.

[4]      All of this is relevant to a proper understanding of the Separation Agreement, the document that underpins the Minister's disallowance of John's claim for a child support deduction. It is a brief document comprising only five clauses. Blank spaces are provided for the names of the parties, the name(s) and date(s) of birth of the child(ren) of the marriage, the date since when the parties have lived separate and apart, the effective date of the agreement, and the amount to be paid and how often. It also provides a space for the amount of spousal support to be paid, but as this was not applicable in the Thomsons' case, this clause has a line scribbled through it and is initialled by the parties.

[5]      In accordance with the Thomsons' verbal agreement, the court official filled in the blanks. Mr. Thomson's name was originally misspelled as "Thompson" but the offending "p" was scratched out and initialled. The effective date is written in Clause 1 as "March 28, 1997"; in Clause 2(b), "$275", the amount of child support to be paid "per month". Tacked on below is a standard paragraph listing the statutory conditions terminating the payor's obligation to pay child support. Finally, there is a space for the signatures of the parties duly signed by John and Annette. If this were all that was contained in the Separation Agreement, I would have no difficulty in concluding that it satisfies the requirement in paragraph 56.1(4)(a). Unfortunately, there lurks in this document an additional provision which counsel for the Respondent argued, deprives the support paid for the Thomson daughter of its deductible status.

[6]      That provision is Clause 3 of the Separation Agreement which states: "Party A and Party B agree that this agreement terminates when Party B ceases to qualify for support out of public money." At the hearing, counsel for the Respondent argued that pursuant to this clause, the Separation Agreement terminated in January 1998 when, upon her remarriage, "Party B", (a.k.a. Annette) ceased to qualify for the "Mother's Allowance". Hence, by 2000, there was no "written agreement" pursuant to which child support payments were made. From this it follows that there can be no "support amount" within the meaning of subsection 56.1(4) of the Income Tax Act and thus, no deduction entitlement. I note, however, that although the Separation Agreement formed the basis of the Respondent's argument at the hearing, there is no mention of it in the Reply to the Notice of Appeal. According to the assumptions in the Reply, the Minister's reassessment was based on the Minutes of Settlement; specifically, its lack of child support provisions. With this, John did not take issue but argued that in making his reassessment, the Minister looked to the wrong document - he ought properly have looked at the Separation Agreement. Annette's testimony (the Respondent's witness) supports this conclusion. Having thus "demolished" the Minister's assumption, John shifted onus that in tax cases rests first with the Appellant to the Minister to rebut his prima facie case[2].

[7]      The requirement in the Income Tax Act that there be a "written agreement" pursuant to which child support has been paid is a refinement of the taxpayer's general statutory obligation to keep "adequate books and records" to substantiate the claim made. As is the case with books and records, the Act does not define "written agreement" nor does it contain any specifications regarding its format or content. Ranked in paragraph 56.1(4)(a) as an alternative to a "court order", it follows that the Act requires of a "written agreement" a certain degree of reliability in proof of the agreement between the payor and the recipient. Whether in any particular case records are adequate to support the claim made by the taxpayer is a question of fact that will depend on the evidence presented.

[8]      John was self-represented and testified at the hearing. Annette was called by the Respondent. I found them both to be credible witnesses who gave their evidence in a straight forward manner. I accept their evidence that they agreed that John would pay $275.00 per month to Annette starting on March 28, 1997 and that it was their intention to bind him to that agreement by inserting these terms in the Separation Agreement. I further find that these were the only terms to which they had turned their minds and to which they put their signatures on March 3, 1997. Their course of conduct following the completion and signature of the Separation Agreement is consistent with the terms of the Separation Agreement. Until March 2004 when Annette applied for a court order to increase the amount of child support in accordance with John's enhanced ability to pay, John faithfully paid $275.00 monthly. Throughout this time and as agreed, John deducted from his income and Annette included as income the child support payments. Both parties understood that the 2004 court order would result in the child support no longer being deductible in John's hands and taxable in Annette's. Finally, Annette testified that John paid support to her by cheque. While cheques in themselves have been held not to be sufficient to constitute a "written agreement" within the meaning of subsection 56.1(4)[3], they may, in conjunction with other writing between the parties, lead to the conclusion that child support was paid pursuant to a "written agreement". The present case is exactly such a circumstance.

[9]      For all of these reasons, I am satisfied that for the purposes of subsection 56.1(4), a written agreement can be inferred from the words the Thomsons caused to be written in the blanks of the Separation Agreement setting out what had been agreed between them and signed by them on March 3, 1997. In view of this finding, it is not necessary to consider whether the John's cheques would be sufficient in themselves for this purpose but, in these particular circumstances, I am inclined to think they were. They are certainly supportive of the existence of an agreement and the terms upon which it was based. The appeal is allowed, with costs, and the reassessment is referred back to the Minister on the basis that there was a "written agreement" pursuant to which child support in the amount of $3,600.00 was paid.

[10]     If I am wrong in the above conclusion, and I ought to have taken into account the standard form provisions contained in the Separation Agreement, then I am further satisfied that on a proper interpretation of that agreement, Clause 3 did not operate so as to trigger the termination of the Separation Agreement when Annette remarried in January 1998. When the Thomsons signed the Separation Agreement on March 3, 1997, their daughter was only four years old and as such, likely to require John's financial support for several more years. It is unreasonable to conclude that in such circumstances, her parents would have intended to make John's child support obligations contingent on Annette's maintaining her eligibility for government aid. It is equally unlikely, and certainly contrary to good public policy, for the government drafter of the Separation Agreement to have intended such an outcome. Clause 2(b) deals exhaustively with child support obligations, including the statutory events of termination. Clause 3 appears to be directed to the completely unrelated topic of a custodial mother's entitlement to such programs as the Mother's Allowance.

[11]     I do not accept counsel for the Respondent's argument that a strict interpretation approach ought to be taken in this case. The problem lies with the fact that the Separation Agreement is a poorly drafted, standard form document press-ganged into service for a multitude of specialized tasks, none of which it does well. In this sorry state, it is presented to family law litigants who are often self-represented, under stress and without the expertise to determine its implications[4]. Such vulnerability leads to reliance on officials who, however well meaning, cannot be expected to act in the same fashion as independent counsel. It was in this context that John and Annette used the Separation Agreement to set out the details of their agreement regarding child support. In these circumstances, its terms must be construed in manner that is consistent with their intentions. For these reasons, the appeal is allowed on the same basis set out above.

Signed at Ottawa, Canada, this 26th day of November, 2004.

"G. Sheridan"

Sheridan, J.

CITATION:

2004TCC772

COURT FILE NO.:

2003-2122(IT)I

STYLE OF CAUSE:

John Thomson v. HMQ

PLACE OF HEARING:

St. Catharines, Ontario

DATE OF HEARING:

June 1, 2004

REASONS FOR JUDGMENT BY:

The Honourable Justice G. Sheridan

DATE OF JUDGMENT:

November 26, 2004

APPEARANCES:

For the Appellant:

The Appellant himself

Counsel for the Respondent:

Joanna Hill

COUNSEL OF RECORD:

For the Appellant:

Name:

Firm:

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada

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