Date: 20020319
Docket: 2000-3534-IT-I
BETWEEN:
LOUISE NOBERT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
Tardif, J.T.C.C.
[1] This is an appeal concerning the 1997 and 1998 taxation years.
[2] The issue is whether in computing the appellant's income for the two years in question the amounts of $5,082 and $6,318 respectively were duly included as alimony or other allowance payable on a periodic basis.
[3] In issuing the notices of reassessment dated December 29, 1999, the Minister of National Revenue (the "Minister") made the following assumptions of fact:
[TRANSLATION]
(a) the appellant and Denis Dufresne were married on December 22, 1989;
(b) the appellant and Denis Dufresne are the parents of two children:
(i) Audray-Anne, born on October 5, 1990;
(ii) Bruno-Pierre, born on July 9, 1992;
(c) the marriage of the appellant and Denis Dufresne was dissolved on November 17, 1995;
(d) in an agreement on an application for variation of corollary relief dated March 21, 1997, the parties agreed as follows:
(i) Denis Dufresne is required to pay the appellant the sum of $325 for support arrears,
(ii) Denis Dufresne is required to pay the appellant, for the minor children Audray-Anne and Bruno-Pierre, the following weekly amounts depending on the source of his income:
(a) employment insurance benefits: $100,
(b) salary: $150,
(c) no income: no amount payable;
(e) on May 20, 1997, the Honourable Judge Robert Legris of the Superior Court received, confirmed and rendered enforceable the agreement between the parties dated March 21, 1997, and ordered the said parties to comply therewith;
(f) the Minister established that the amounts received by the appellant as support were taxable for the 1997 and 1998 taxation years;
(g) the Minister based his decision on the fact that the judgment dated May 20, 1997, had merely confirmed the agreement between the parties dated March 21, 1997.
[4] After being sworn, the appellant denied the facts set out in subparagraphs (f) and (g).
[5] The appellant explained that she and her spouse had agreed on the terms and conditions relating to the amounts payable in respect of support obligations. She explained that both had been represented at the time by counsel and that both parties had wanted the content of the agreement to be subject to the new provisions of the Income Tax Act (the "Act") respecting the non-taxation of support payments in the recipient's hands, which came into force in May 1997.
[6] The agreement, dated March 21, 1997, reads as follows:
[TRANSLATION]
. . .
AGREEMENT ON APPLICATION
FOR VARIATION OF COROLLARY RELIEF
The parties hereto have entered into the following agreement:
(1) TO VARY the judgment of January 22, 1996;
(2) TO ORDER the applicant to pay the respondent the amount of $325 in respect of support arrears for the period from July 1996 to the date hereof;
(3) TO ORDER the applicant to pay the respondent, for the minor children Audray-Anne and Bruno-Pierre, support of $100 a week when the applicant is receiving employment insurance benefits and $150 a week when the applicant is employed; the applicant is not required to pay the respondent support when he is receiving no income;
(4) THE WHOLE with each party paying his or her own costs.
. . .
[7] The agreement was confirmed by the Honourable Judge Robert Legris, the whole as appears in the judgment dated May 20, 1997, which reads as follows:
[TRANSLATION]
. . .
The court has before it an application for variation of corollary relief.
Whereas the parties have entered in the record an agreement that should be confirmed;
FOR THESE REASONS, THE COURT:
RECEIVES, CONFIRMS AND RENDERS ENFORCEABLE the agreement entered into between the parties on March 21, 1997, appended to this judgement, and ORDERS the parties to comply therewith.
. . .
[8] The appellant stated that the agreement had been deliberately held back so that when submitted to the court it would bear a date subsequent to the coming into force of the provisions of the Act relating to the non-taxation of support payments in the recipient's hands.
[9] In support of her claims, the appellant submitted that the agreement provided for a significant reduction in the amount that had till then been payable to her, precisely because the amounts to be paid were no longer to be taxable in her hands.
[10] She added that her former spouse subsequently changed his mind, as he had initially said he would not claim the deduction.
[11] The respondent, for her part, emphasized the date of the agreement, which was prior to the coming into effect of the provisions relating to the non-taxation of support payments in the recipient's hands.
[12] According to the Minister, the judgment essentially confirmed the entire content of the agreement and so the date of the judgment is of no effect. To reinforce her view of the effect of the agreement, the respondent argued that the parties had complied with its content from the date of its signing.
[13] In support of her claims regarding the effects of a private agreement, the respondent referred to the judgment of the Superior Court of Quebec in H.L. c. R.M., a case in which Morin J. wrote as follows :
[TRANSLATION]
10. Counsel for Ms. H.L. emphasized to the court that the agreement of January 22, 1993, does not have the effect of an out-of-court settlement since it was not confirmed by judgment. Counsel contended that the court was thus not bound by the agreement and that it could decide on the basis of what it found to be fair and appropriate having regard to the circumstances referred to in section 17 of the Divorce Act. Relying moreover on Ms. H.L.'s testimony, counsel disputed the agreement's validity in light of the fact that her client had not been assisted by independent legal counsel at the time the agreement was signed.
11. The fact that the agreement was not confirmed by the court in no way prevents it from having its effects between the parties. In the decision Droit de la famille No. 153, Jean Marquis J. of the Superior Court ruled on this question as follows:
When R-3 was signed on May 1, 1961, the parties were able to agree on the amount of support and they were not required to submit that agreement for approval by the courts except to the extent of obtaining judicial recognition, with the consequences which that entails.
However, the agreement's validity is not conditional on its being approved or sanctioned by the court: it is a valid agreement which has its effects between the parties.
[14] Morin J. referred to a passage from the judgment of the Supreme Court of Canada in Pelech v. Pelech, [1987] S.C.J. No. 31 (Q.L.). Wilson J. therein stated:
. . . I believe that the courts must recognize the right of the individual to end a relationship as well as to begin one and should not, when all other aspects of the relationship have long since ceased, treat the financial responsibility as continuing indefinitely into the future. Where parties, instead of resorting to litigation, have acted in a mature and responsible fashion to settle their financial affairs in a final way and their settlement is not vulnerable to attack on any other basis, it should not, in my view, be undermined by courts concluding with the benefit of hindsight that they should have done it differently.
[15] The above two passages show that judicial confirmation of an agreement is not essential in order for the agreement to have effect. However, it is also clearly stated that such confirmation provides what Morin J. describes as "judicial recognition, with the consequences which that entails".
[16] Only a written agreement or a judgment is considered for the analysis of the tax consequences of support payments. An oral understanding or agreement has no effect in tax matters. While valid in civil law, an oral agreement is however vulnerable since it can be extremely difficult to prove.
[17] The dispute in the instant case turns essentially on the date to be considered, and this obviously has significant consequences.
[18] The respondent contends that the agreement of March 21, 1997, must be the reference document for determining whether the agreement met the requirements of the Act.
[19] In support of her interpretation, the respondent argues that the parties applied and complied with the content of the agreement from the moment it was signed on March 21, 1997.
[20] This is a most unconvincing argument which establishes nothing except that the parties honoured their signature until they had obtained a judgment.
[21] An agreement under private writing creates rights and obligations for the signatories, who may at any time cancel, vary or confirm its content either in writing or orally. An oral agreement is subject to problems of proof; moreover, it must be recognized by the courts in order to be enforceable.
[22] A judgment, on the other hand, may be quickly enforced at all times, and only another judgment may vary its content.
[23] In the instant case, the judgment of May 20, 1997, constitutes the confirmation and recognition of the will of the parties expressed on March 21, 1997.
[24] Although the judgment adopted the content of the agreement dated March 21, 1997, it blotted out that agreement for the future. Any support collection action would thenceforth be based on the judgment alone as the agreement no longer had any legal effect.
[25] The judgment dated May 20, 1997, constituted the culmination of an agreement and, failing any express stipulation that certain provisions applied retroactively, the date of the judgment is the sole applicable reference.
[26] In the instant case, the parties signed an agreement on March 21, 1997. They could have verbally varied or even cancelled that written agreement at any time. In actual fact, they verbally confirmed and ratified its content since they chose to have it confirmed by the court. Indeed, the appellant explained that ratification was the firm intent of her former spouse and her when they submitted their agreement to the court. There is no evidence to rebut or to justify rejecting the appellant's credible and plausible explanation.
[27] For these reasons, the appeal is allowed.
Signed at Ottawa, Canada, this 19th day of March 2002.
"Alain Tardif"
J.T.C.C.
Translation certified true on this 10th day of May 2002
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
2000-3534(IT)I
BETWEEN:
LOUISE NOBERT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on February 25, 2002, at Bécancour, Quebec, by
the Honourable Judge Alain Tardif
Appearances
For the Appellant: The Appellant herself
Counsel for the Respondent: Marie-Aimée Cantin
JUDGMENT
The appeal from the assessments made under the Income Tax Act for the 1997 and 1998 taxation years is allowed in accordance with the attached reasons for judgment.
Signed at Ottawa, Canada, this 19th day of March 2002.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 10th day of May 2002
Erich Klein, Revisor