Proposal was not binding offer until parties executed formal separation agreement

Tax - Income Tax - Other Deductions

After separation, taxpayer made payments to spouse during 2013 taxation year while their lawyers were engaged in protracted negotiations. Taxpayer deducted support payments in amount of $23,281 and allowable support deduction of $5,120. Finalized separation agreement was executed in 2015. Minister reassessed taxpayer to disallow deduction for 2013 taxation year, while allowing taxpayer’s similar payments and deductions for 2014 and 2015 taxation years on basis that those were “year and previous year” of agreement within language of s. 60.2(2) of Income Tax Act. Taxpayer appealed. Appeal dismissed. Taxpayer argued that letters exchanged by lawyers conjunctively and cumulatively formed written agreement as early as calendar year 2014, but these letters left considerable doubt about whether there was actual acceptance of terms of spousal support resulting from exchange. Express terms within letters supported view that binding written agreement was not reached. Proposal by taxpayer’s lawyer made clear that it was not offer that could be rendered binding until parties executed formal separation agreement and spouse’s lawyer rejected multiple proposed terms outright. Taxpayer had been afforded additional time to attempt to locate further evidence of claimed binding, written agreement during period after exchange of letters and prior to end of year 2014 and had been unable to do so. There was no written agreement creating obligation to pay support amount in 2014 taxation year that would have referred back to taxation year 2013 as “previous year”. Payments in 2013 were not support amounts within deeming provisions of s. 56.1(4) of Act.

Burton v. The Queen (2019), 2019 CarswellNat 1052, 2019 CarswellNat 989, 2019 TCC 67, 2019 CCI 67, Randall S. Bocock J. (T.C.C. [Informal Procedure]).

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