Burton v. R. – TCC: Insufficient evidence of binding legal agreement to permit deduction of support payments in 2013

Burton v. R. – TCC:  Insufficient evidence of binding legal agreement to permit deduction of support payments in 2013


Burton v. The Queen (March 29, 2019 – 2019 TCC 67, Bocock J.).

Précis:   The taxpayer sought to deduct spousal support payments made in 2013.  CRA allowed deductions for payments made in 2014 and 2015 on the basis that a finalized separation agreement was entered into in 2015 since under the provisions of the Income Tax Act deductions were permitted in “the year and previous year” in which the agreement was reached.  CRA denied the deduction for 2013 on the basis that no binding separation agreement was reached in either 2013 or in 2014.  The taxpayer appealed to the Tax Court which agreed with CRA’s position and dismissed the taxpayer’s appeal, but without costs since this was an informal procedure appeal.

Decision:   The taxpayer relied upon an exchange of correspondence between his lawyer and that of his former spouse but the Court found that the documentation did not evidence a binding agreement concluded in either 2013 or 2014:

[9]  Regrettably for Mr. Burton, the Court in this appeal cannot ford the gap. The lawyers’ letters, when considered in their totality, leave considerable doubt in any reader’s mind: where is there actual acceptance of the terms of spousal support resulting from the exchange? 

[10]  Express terms within the letters support the view that a binding, written agreement was not reached from the exchange. Firstly, within Mr. Burton’s counsel’s letter, the second last paragraph makes it clear that the proposal as a whole contained in the letter was not an offer which could be accepted and rendered binding “until the parties have executed a formal separation agreement.” On this basis alone, unilateral acceptance by Mrs. Burton’s lawyer could not have affected a binding, written agreement without a “formal separation agreement”. The express “non-binding” term embedded as a final provision within his own lawyer’s proposal letter precluded such from occurring.

[11]  Secondly, such musing is hypothetical. There remained a least one-half dozen terms rejected outrightly by Mrs. Burton’s lawyer. Further, other responses demanded further financial disclosure and information. Not only was this true within other headings in the response, but it was also manifestly present within at least 4 different provisions concerning “Spousal Support”, namely, paragraphs 16, 17(a), 18 and 19.

[12]  As stated, additional time has been afforded Mr. Burton to attempt to locate any additional evidence of the achievement of a binding, written agreement during the period after the exchange of lawyer letters and prior to December 31, 2014.  This has not occurred. As such, the Court cannot conclude a written agreement creating an obligation to pay a support amount existed in the 2014 taxation year, in turn, referable back by virtue of subsection 60.1(2) to taxation year 2013, as the “previous year”. Therefore, payments in 2013 were not support amounts within the deeming provisions of subsection 56.1(4). For these reasons, the appeal is dismissed without costs.