Citation: 2013 TCC 194
Date: 20130619
Docket 2012-469(IT)I
BETWEEN:
SANDRA HIGGINS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
Docket: 2012-470(IT)I
AND
BETWEEN:
KAREN KINNIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent;
REASONS FOR JUDGMENT
Rowe D.J.
[1]
Upon consent of counsel for the respondent
and the appellant, these appeals were heard together.
[2]
On December 10, 2010, the Minister of National Revenue ( the Minister) assessed each appellant for $5,096.08
respecting the transfer of property to each of them within the meaning of
section 160 of the Income Tax Act ( the Act). On December 10, 2010, the Minister also assessed each appellant for $6,047.10 respecting the
Registered Retirement Investment Fund (RRIF) transferred to each of them within
the meaning of section 160.2 of the Act and accordingly issued notices
on that date in respect of each assessment.
[3]
Karen Kinnis (Kinnis) testified she
resides in Victoria, British Columbia and her sister, Sandra Higgins (Higgins)
lives in Prince Albert, Saskatchewan. Their father, Arthur W. Higgins, lived in
Winnipeg, Manitoba. Kinnis described him as a real character who purchased
a delivery business in the medical supply field and operated it until age 80.
He died on February 12, 2002. Kinnis stated she had been on her way to Winnipeg to see him but he died before she arrived. A cousin informed her that her father
may have had an insurance policy with London Life. When he died, Arthur W.
Higgins did not have a last will and testament. Kinnis stated she discovered
that, apart from an account at a branch of the Royal Bank of Canada in Winnipeg, there were no other assets. The bank would not permit Kinnis to withdraw funds
from the account but agreed the balance therein could be transferred directly
to the funeral home and the services provided used up that amount. Kinnis
stated there was no point in undertaking any administration of the Estate. She met
with a London Life agent in Winnipeg and was informed that she and her sister
Higgins were beneficiaries of a policy designated as a non‑registered
freedom fund segregated fund investment. They were advised that their father
Arthur W. Higgins - had designated them as equal beneficiaries of this fund
pursuant to a document signed on April 22, 1999. Kinnis and Higgins provided proof of their identity to the London Life representative and signed some
documents. Within a month, each appellant received a cheque - in the sum of
$5,096.98 - from London Life representing payment from that particular fund.
Kinnis stated that at the time she and her sister each received the cheque,
they believed the source of the payment was a traditional life insurance policy.
Kinnis and Higgins (whose surname at the time was Sarginson) also each received
a cheque dated February 28, 2002 from London Life in the sum of $14,635.84
- one-half of $29,271.68 the total amount in the RRIF owned by their
late father. Kinnis stated she was informed by the agent of London Life in Winnipeg that no tax was payable in respect of the sum of $5,096.98. However, she decided
to hold onto those funds until she contacted a Canada Revenue Agency (CRA) office and an employee had confirmed that no income tax was payable with respect to monies
received by a beneficiary pursuant to a life insurance policy. Kinnis stated
that - in 2002 - she received a call from an employee at CRA who advised her that a tax return had to be filed on behalf of the Estate of Arthur W.
Higgins. Kinnis informed the CRA representative that there had been no probate
or administration of the Estate and that the tax return for Arthur W. Higgins
2001 tax return had been filed by his usual tax preparer in Winnipeg as a courtesy.
Kinnis stated she sent a letter Exhibit A-1 - dated December 31, 2004 to CRA and enclosed a T1 General form for the 2003 taxation year which included two Statements of
Canada Pension Plan Benefits T4A(P) addressed to Estate of the late Arthur Higgins,
c/o of Karen Kinnis - for the taxation years 2002 and 2003 with respect to
amounts paid to Arthur W. Higgins. She also enclosed a T5 with respect to
investment income earned by her father in 2002. In a handwritten addendum to
her typed letter, Kinnis referred to the amount - $29,182.81 of the RRIF and
stated she had not included that amount in the T1 General because this was
the amount of the death benefit paid to my sister and myself. Kinnis did not
sign the return as she was neither Executrix nor Administratrix of the Estate
which had not been subject to probate or administration in accordance with the
laws of Manitoba. At one point, an employee of CRA had refused to discuss the
matter with Kinnis because she had no official standing with respect to
the Estate of Arthur W. Higgins. In March, 2005, Kinnis sought legal advice and
was informed that she was not the official representative of her fathers
Estate. In 2006, she provided CRA with a copy of her fathers death certificate
and stated again that he had no assets at the time of his death. In 2007, a
CRA employee Mark McDonald (McDonald) requested Kinnis to provide proof
that she and her sister were named beneficiaries under the London Life
non-registered segregated fund policy and she located the document and faxed it
to him. Kinnis recalled McDonald mentioned the application of section 160 of
the Act but expressed the opinion that CRA probably would not pursue the
matter in light of the small amount involved. In August, 2010, she was
contacted by a CRA agent in the collections department who informed her that
her fathers tax account was in arrears. Kinnis stated she referred the agent
to her earlier contact McDonald and then phoned McDonald who was
sympathetic but advised her to seek counsel and to file Notices of Objection to
the assessments. Kinnis disputes the accuracy of the assumption at paragraph
13(j) of the Reply to her Notice of Appeal that her fathers 2001 return -
filed on October 18, 2002 - was assessed by the Minister on December 2, 2002.
Regarding the assumption at paragraph 13(l), she stated she did not file a tax
return for the Estate of Arthur W. Higgins on January 13, 2005 but merely provided information in the form of a letter with supporting documents. Contrary
to the assertion by the Minister at paragraph 13(m), Kinnis stated she had
advised CRA of the amount of the RRIF in her letter Exhibit A-1. In the
handwritten letter to McDonald Exhibit A-2 dated February 23, 2007, Kinnis
included a copy of an e-mail she had received from Lisa Johnson, a
representative of London Life in Winnipeg confirming that she had been
designated a beneficiary on her fathers investment fund on April 22, 1999 and
that another beneficiary form signed on September 17, 2001 had not changed this
designation. Subsequently, Kinnis received a telephone call from McDonald
confirming receipt of her letter and she noted on the bottom of a copy of that
letter that during their conversation McDonald told her, Karen, you wont be
hearing from RC on this matter again. Kinnis stated that RC referred to
Revenue Canada, the precursor agency to CRA. With respect to the tax assessed
against her and Higgins jointly and severally Kinnis did not believe it had
been calculated correctly, based on the amount of her fathers RRIF and income
in 2002. She stated she had difficulty obtaining information in that regard
when dealing with various representatives of CRA over several years because the
employees of CRA in Victoria had advised their task was to collect those
amounts provided to them by the Winnipeg office.
[4]
Counsel for the respondent filed a
binder - Exhibit R-1 entitled Respondents Book of Documents with tabs 1-14,
inclusive. Reference to a tab number will relate to a document or documents
within the binder.
[5]
Counsel referred Kinnis to copies
of two London Life cheques - tab 9 each in the sum of $5,096.08 to herself
and her sister - then known as Sandra Sarginson - and to copies of two London
Life cheques tab 11( last two pages) each in the sum of $14,635.84 one
payable to Kinnis and the other to Sarginson. The London Life form identified
the contract number of the RRIF and stated that each cheque represented
one-half of the total proceeds of the RRIF owned by the annuitant, Arthur W.
Higgins and was payable to each of them as their share of death claim
proceeds. Kinnis confirmed those were the cheques and the statements received.
With respect to the T4RIF tab 10 in the sum of $29,182.81 addressed to
Arthur W. Higgins pertaining to his 2002 taxation year, Kinnis stated she
probably had received it from someone at CRA because she had it in her
possession prior to writing her letter Exhibit A-1- dated December 31, 2004.
Kinnis stated she had been advised by her fathers tax preparer that on October 18, 2002 - a return had been filed for his 2001 taxation year. Counsel referred
Kinnis to a printout of the assessment dated December 2, 2002 - issued to the Estate of the Late Arthur W. Higgins c/o Karen Kinnis. Kinnis acknowledged
she had received this document at her Victoria address. The total tax payable
according to the assessment was in the sum of $2,477.54, including certain
amounts for late filing penalty, interest and instalment interest. Kinnis was
directed to tab 7 and a printout of an assessment dated March 3, 2005 issued to the Estate of the Late Arthur W. Higgins addressed to the same address.
Kinnis stated that until the week before this hearing, she had not seen this
assessment or any re-creation thereof including any printout. This assessment
was in the sum of $8,048.24 and the previous account balance of $2,889.98 had
been added to create a total indebtedness of $10,948.22 which included the sum
of $973.13 for interest and $1,028.01 for penalties. The T4RIF tab 10- was
provided by Kinnis together with other documents in her letter of December 31, 2004. (Exhibit A-1). Counsel for the respondent filed as Exhibit R-2
the 2002 return filed on behalf of Arthur W. Higgins by his tax preparer and
the letter from Kinnis that had also included the T4RIF.
[6]
The appellants closed their case.
[7]
Alnoor Ramji (Ramji) testified he
is employed by CRA as a Collections Officer. He was assigned the file
pertaining to the Estate of the late Arthur W. Higgins at which time the tax
owing was approximately $18,000.00. Ramji stated he ascertained the Estate had
no assets but located the London Life RRIF and the investment fund. He
ascertained the proceeds of each had been paid in equal sums to the appellants.
Regarding the assessment issued to each appellant pursuant to 160.2 of the Act,
Ramji stated the amount of tax payable should be calculated on the amount of
the benefit received by each appellant from the RRIF. Ramji was referred by
counsel for the respondent to tab 13, a letter from London Life - dated November 18, 2010 which set out in table form the deposits and redemptions for 2001 and
2002 pertaining to the segregated fund owned by Arthur W. Higgins. For several
months prior to his death, he had been withdrawing the sum of $200.00 per
month.
[8]
For purposes of the assessment
pertaining to benefits received by each appellant pursuant to the RRIF, Ramji
stated the effective date was February 21, 2002, the date of the cheques tab
9 issued to each appellant.
[9]
In cross-examination, Ramji stated
he was aware that each appellant on April 22, 1999 - had been designated as a
beneficiary of the plan described - in a letter dated November 21, 2012 from a
London Life representative to a CRA employee tab 14 as a non-registered
freedom fund segregated fund investment with London Life Insurance Company.
Ramji stated he understood that the original of the unsigned and undated form -
Designation of revocable beneficiary tab 9 dated September 17, 2001, did not alter the earlier designation in 1999.
[10]
Section 160.2 and subsection
160.2(2) of the Act read as follows:
Section 160.2
160.2(2)
Joint and several
liability in respect of amounts received out of or under RRIF‑Where
(a) an amount is
received out of or under a registered retirement income fund by a taxpayer
other than an annuitant (within the meaning assigned by
subsection 146.3(1)) under the fund, and
(b) that amount or
part thereof would, but for paragraph 146.3(5)(a), be included in
computing the taxpayers income for the year of receipt pursuant to
subsection 146.3(5),
the taxpayer and the
annuitant are jointly and severally liable to pay a part of the annuitants tax
under this Part for the year of the annuitants death equal to that proportion
of the amount by which the annuitants tax for the year is greater than it
would have been if it were not for the operation of subsection 146.3(6)
that the amount determined under paragraph (b) is of the amount included in
computing the annuitants income by virtue of that subsection, but nothing in
this subsection shall be deemed to limit the liability of the annuitant under
any other provision of this Act.
[11]
Both counsel agreed the effective
date of the transfer to the appellants of the funds from the RRIF of the annuitant
Arthur W. Higgins was on or about February 21, 2002, the date of the London Life cheques payable to each of the appellants in the sum of $14,685.35.
Further, counsel agreed the appeal should be allowed from the assessment of the
Minister dated December 10, 2010 issued to each of the appellants in
respect of their liability under subsection 160.2(2) and that the said
assessments be referred back to the Minister for reconsideration and
reassessment on the basis that each appellant is liable only to the correct
amount of income tax attributable to the specific sum each received from the
RRIF.
[12]
In the case of Belanger v. The
Queen, 2007 TCC 502, Angers J. heard the appeal of a taxpayer who
had been assessed tax in respect of an amount she had received out of a RRIF of
her late mother. At paragraphs 7 to 10 inclusive Angers J. stated:
[7] Benefits received by a taxpayer in a year under a RRIF
must be included in computing the income of that taxpayer for that year under
subsection 146.3(5). Paragraphs 146.3(5)(a)(b) and (c)
of the Act provide exceptions that can reduce this income inclusion, but none
of these was raised in argument nor are they applicable in this case.
Subsection 146.3(6) of the Act provides that when the last annuitant under
a RRIF dies, that annuitant is deemed to have received, immediately before
death, an amount under the RRIF equal to the fair market value of the property
of the fund at the time of the death. The fair market value of the property of
the fund (the benefits) thus deemed to have been received by the appellants
mother must be included in her income pursuant to subsection 146.3(5).
[8] This therefore makes the estate liable for any income
tax owed on these benefits, for the appellants mother is deemed to have
received the funds before she died.
[9] The Act also has provisions that render the annuitant
(or the estate in the case at bar) and a taxpayer other than the annuitant
jointly and severally liable in respect of amounts received out of or under a
RRIF. See subsection 160.2(2) supra.
[10] Subsection 160.2(3) allows the Minister to assess the
appellant at any time for any amount payable under section 160.2 but does
not indicate any obligation on the Minister to attempt to collect that amount
from the estate before issuing the assessment. Subsection 160.2(3) reads
as follows:
160.2(3) Minister may assess recipient
The Minister may at any time assess a taxpayer in
respect of any amount payable by virtue of this section and the provisions of
this Division are applicable, with such modifications as the circumstances
require, in respect of an assessment made under this section as though it had
been made under section 152.
That, in my opinion, makes the appellant liable with
respect to the tax payable.
[13]
In that case, there was an issue
as to whether the amount of tax had been calculated properly and Angers J.
continued as follows:
[11] The
appellant questions the amount of tax assessed and payable under the joint
liability provisions. The amount of tax payable, according to the appellant,
must be determined through the filing of a tax return by the estate. Although
the evidence does not enable us to say with certainty whether the estate has
filed a tax return or not, the appellant has testified that none was filed by
the executor of the estate.
[12] Subsection 160.2(2), quoted above, provides for the
joint and several liability of the annuitant and the taxpayer to pay the
annuitants tax for the year of the annuitants death. The annuitants tax for
which they are liable is equal to the tax liability of the estate, including
the benefits from the RRIF, less the result of a second calculation of the tax
liability of the estate, but this time excluding any benefits that would
normally have to be included by virtue of subsection 146.3(6) of the Act.
The difference between the two tax calculations is the amount which the
appellant and the annuitant (estate) are jointly and severally liable to pay.
[13] The evidence does not disclose how the Minister calculated
the appellant's tax liability, which comes to roughly 40% of the amount
received by her. Subsection 160.2(2) is clear in indicating that the
annuitant or the estate in this case, must first be assessed for the tax on the
benefits from the RRIF in order that the amount of tax payable under the joint
liability provisions may be determined.
[14] The appellant is of the firm belief that no tax returns were
filed for the estate and I accept her evidence in that regard. The appellant is
liable, but the amount for which she is liable must be determined pursuant to
the provisions of the Act. I therefore allow the appeal and refer the
assessment back to the Minister for reconsideration and reassessment in
accordance with these reasons.
[14]
Counsel agreed the above
methodology is applicable to the within appeals with respect to the funds
received from the RRIF. I find the analysis of Angers J. is relevant to a
determination in the within appeals and adopt it for that purpose. Therefore,
at the conclusion of these Reasons, I will refer the particular assessment
issued to each appellant to the Minister for reconsideration and reassessment
in accordance therewith.
[15]
The remaining issue concerns the
receipt of the sum of $5,096.08 by each appellant from the non-registered
freedom fund segregated fund investment owned by the late Arthur W. Higgins.
[16]
Counsel for the appellant
submitted that Arthur W. Higgins had designated his daughters the appellants
as his beneficiaries on April 22, 1999. Although the designation was
revocable, it was unchanged at his death. Even though he had been withdrawing
money from the fund prior to death, the intention was clear that whatever
balance remained at his death was to be payable in equal shares to the appellants.
Counsel submitted that London Life was bound by terms of their contract with
Arthur W. Higgins to transfer the appropriate sum of money to each beneficiary
and that those sums when paid to the appellants pursuant to that legal
obligation did not pass through the Estate of the deceased. In counsels view
of this specific investment, London Life, as a trustee, was required to ensure
any remaining money in that fund was paid in equal shares to the named
beneficiaries.
[17]
Counsel referred to
paragraphs 16 and 17 of the Reply to the Kinnis appeal (the identical wording
is used in paragraphs 15 and 16 of the Reply to the Higgins appeal) as follows:
16. He submits that on or about February 21, 2002, the
Estate transferred the Property to the Appellant for no consideration and the
Estate was liable to pay at least $16,376.77 under the Act respecting
the 2001 and 2002 taxation years. As such, the Appellant is liable for
$5,096.08 under section 160 of the Act.
17. In the alternative, the Father transferred the Property
through instructions and beneficiary designations made to financial
institutions and that transfer was an indirect transfer by the Estate. The
transfer was for no consideration and the Estate was liable to pay at least
$16,376.77 under the Act respecting the 2001 and 2002 taxation years. As
such, the Appellant is liable for $5,096.08 under section 160 of the Act.
[18]
Counsel submitted that even if the
position of the respondent is correct in assuming the sum paid to each
appellant had been transferred directly or indirectly from the Estate of Arthur
W. Higgins, then the effective date of the transfer of the right to share
equally in the eventual residue of that fund was April 22, 1999, when the
Designation of revocable beneficiary was signed by Arthur W. Higgins. In 1999,
counsel submitted there was no evidence he had any tax liability and even
though their property interest in the fund as beneficiaries - was subject to
revocation by him and all the funds could have been withdrawn prior to his
death, neither of those events occurred.
[19]
Counsel for the respondent
submitted the particular London Life segregated fund was not a traditional life
insurance policy. As conceded by counsel for the appellants, the designation of
the appellants as beneficiaries was subject to revocation and their father had
complete control over that fund until his death. He was receiving payments from
that investment on a regular basis and at any time could have withdrawn the
entire amount. Counsel submitted that the only point at which the property
could have been transferred to the appellants as beneficiaries was in 2002
after their fathers death. The broad wording of section 160.(1) of the Act has
been interpreted in the jurisprudence as including - within the definition of
the transfer of property - the distribution of it. Instructions had been given
by Arthur W. Higgins to London Life concerning the balance of the fund at the
time of his death and those were carried out. However, in doing so - on February 21, 2002 - London Life transferred his property to the appellants when he had a
tax liability in the sum of $16,376.77 and the appellants are liable jointly
and severally to the extent of the total amounts received from London Life.
[20]
Subsection 160(1) of the Act reads:
160.(1) Tax
liability re property transferred not at arms length Where a person has,
on or after May 1, 1951, transferred property, either directly or indirectly,
by means of a trust or by any other means whatever, to
(a) the persons
spouse or common-law partner or a person who has since become the persons
spouse or common law partner,
(b) a person who
was under 18 years of age, or
(c) a person with
whom the person was not dealing at arms length,
the following rules
apply;
(d) the transferee
and transferor are jointly and severally liable to pay a part of the
transferors tax under this Part for each taxation year equal to the amount by
which the tax for the year is greater than it would have been if it were not
for the operation of sections 74 to 75.1 of this Act and section 74
of the Income Tax Act, chapter 148 of the Revised Statutes of Canada,
1952, in respect of any income from, or gain from the disposition of, the
property so transferred or property substituted therefor, and
(e) the transferee
and transferor are jointly and severally liable to pay under this Act an amount
equal to the lesser of
(i) the amount, if
any, by which the fair market value of the property at the time it was
transferred exceeds the fair market value at that time of the consideration
given for the property, and
(ii) the total of
all amounts each of which is an amount that the transferor is liable to pay
under this Act in or in respect of the taxation year in which the property was
transferred or any preceding taxation year,
but nothing in this
subsection shall be deemed to limit the liability of the transferor under any
other provision of this Act.
[21]
In the case of Kiperchuk v. The
Queen, 2013 TCC 60, the Minister had assessed the appellant on the basis her
former spouse had transferred proceeds of his RRSP to her without
consideration - upon his death at a time when he was liable under the Act
for a large amount of tax.
[22]
At paragraphs 16 to 21, inclusive,
Lamarre J. stated:
[16] The meaning of the term transfer was expounded
in Fasken Estate v. Minister of National Revenue, [1948] Ex. C.R. 580,
at page 592, [1948] C.T.C. 265, at page 279, in a passage that has
subsequently been cited by courts (Yates v. The Queen, 2009 FCA 50, Tétrault
v. The Queen, 2004 TCC 332). It is defined as follows:
The word "transfer" is not a term of art
and has not a technical meaning. It is not necessary to a transfer of property
from a husband to his wife that it should be made in any particular form or
that it should be made directly. All that is required is that the husband
should so deal with the property as to divest himself of it and vest it in his
wife, that is to say, pass the property from himself to her. The means by which
he accomplishes this result, whether direct or circuitous, may properly be
called a transfer.
[17] The word transfer was given a very broad
definition. To repeat the terms used in Fasken Estate, all that is
required is that the husband should so deal with the property as to divest
himself of it and vest it in his wife, that is to say, pass the property from
himself to her.
[18] In Montreuil v. R., 1994 CarswellNat
1522, [1996] 1 C.T.C. 2182, Judge Dussault of this Court, as he then was,
concluded that the word transfer included the act of giving property under a
will, and that the term property included a right to property (the term
property being defined in subsection 248(1) of the ITA as a right of any
kind whatever). Thus, Judge Dussault said (at paragraph 37 CarswellNat, pages
2198-99 C.T.C.), as of the moment of death, there was a transfer to the
appellants of a right to claim the legacy amount provided for in the deceaseds
will.
[19] In Fasken Estate, supra, it was
held that the property transferred to Mrs. Fasken was the right to receive
under a declaration of trust a portion of the interest on certain indebtedness,
and that that property passed to her from her husband, who had previously owned
the whole of the indebtedness out of which the right to receive a specified portion
of the interest on it was carved. The time of the transfer was the date of
execution of the documents conferring the right to receive the property (pages
592-93, 597-98 and 598-600 Ex. C.R.; pages 279-80, 283-84 and 285-86
C.T.C.)
[20] Thus, the
respondent concluded rightly, in my view in the present case that, because
the appellant was the designated beneficiary of the RRSP owned by her former
husband, there was a transfer of property which took place at the time of his
death. From that moment, the appellant had a right to claim the RRSP to which
she had become entitled as the designated beneficiary.
[21] I therefore
agree with the respondent that the words directly or indirectly, by means of a
trust or by any other means whatever used in subsection 160(1) are language
broad enough to capture the passing of an entitlement to an RRSP from one
person to another by way of a designation.
[23]
In Homer v. R, 2009
TCC 219, 2009 CarswellNat 1313, , there was a last will and testament and the
appellant acquired a property pursuant thereto but it vested on the second
anniversary of the death of the transferor. At paragraphs 22 and 23 of his
judgment, Angers J. stated:
22 The
respondent has conceded that paragraph 251(1)(a) has no application
here. Counsel for the respondent relies instead on the deeming provision found
in paragraph 251(1)(b). For paragraph 251(1)(b) to apply, the
transferor has to be either the trust created by the will or the estate, a
trust and an estate being considered one and the same by virtue of
subsection 104(1) of the Act. However, if the properties vested
indefeasibly in the transferees (appellants) by virtue of the Devolution of
Estates Act and any power the executor, personal representative or trustee of
the estate may have had accordingly expired on the second anniversary of the
death of Nellie Isabelle Leland, it cannot be said, in my opinion, that the
transferor is the trust or the estate. Since there is nothing in Nellie
Isabelle Lelands will that either expressly or implicitly provides that title
(legal) would remain n the executor or trustee beyond the two-year period, the
provisions of the Devolution of Estates Act apply so as to divest the
executors, personal representatives and trustees of the legal title they held
in the properties and all their powers have thus expired. In my opinion, the
trust or the estate cannot be said to be a party to the transfer of the
properties. In such circumstances, the presumption found in
paragraph 251(1)(b) would have no application.
23 The
transferor here could arguably be the late Nellie Isabelle Leland, but it has
been agreed that she is not related to the appellants within the meaning of the
definition of related persons in the Act and consequently the presumption found
in paragraph 251(1)(a) is not applicable. Given the above circumstances,
section 160 has no application here as it cannot be concluded that the
transferor and the transferee were not dealing at arms length.
[24]
In the within appeals, there was
no last will and testament and there is no question that the appellants as
daughters of Arthur W. Higgins were related persons, therefore not at arms
length.
[25]
The position of the appellants was
that the particular investment held by Arthur W. Higgins was analogous to a
life insurance policy and that the Estate was not the beneficiary of the funds
upon his death. Since 1999, the appellants had been designated as recipients
in equal shares - of any money remaining in that investment upon his death.
[26]
In the case of Nguyen v. Canada,
2010 TCC 503, Angers J. addressed the validity of subsection 160(1)
assessments against Nguyen and her three children. Her husband Hien Vohoang
died intestate and at his death had a tax liability. Vohoang had a life
insurance policy payable on death to his wife Nguyen and their three
children, two of whom were minors. In the reasons, Angers J. set forth
additional facts in paragraphs 8 to 11, inclusive, as follows:
[8] The proceeds of a second life
insurance policy, under a group insurance policy issued by Aetna Insurance
Company, in the amount of $47,000, was paid to the wife of the late
Hien Vohoang as designated beneficiary. It is not disputed that the
proceeds of the two insurance policies are not part of the assets of the
estate.
[9] In the documents collected during
the investigation by the Canada Revenue Agency there is a reproduction of
debits and credits to an account at the Royal Bank of Canada in the name of the estate of Hien Vohoang, in which the first transactions are dated September 7, 1993. The evidence is that the account was opened by the appellant
Isabelle Vohoang. She was 20 years old at the time, and was a
student. She testified that she recalled that she and her mother were the
liquidators of the succession. She stated that she agreed to take on this
responsibility at the request of her mother, so that things would work better
and it would be for the benefit of everyone.
[10] She does not recall opening the
account, except that it must have intended to make it easier to manage her late
fathers affairs. She noted that she followed her mothers instructions, she
signed cheques and she did not ask questions. Indeed, she was the only person
authorized to sign cheques on that account, according to her mother. She was
able to identify her signature on the cheques that are the subject of this
appeal, but she does not recall the reasons why those banking transactions were
carried out. She remembers very little of the administration of her late
fathers estate, except that she received her share of his life insurance on
her wedding day, two years ago.
[11] Ms. Nguyen explained how the
sudden death of her husband had turned her life upside down. Ms. Nguyen
was her husbands assistant at work. She did a little of everything,
particularly on the human side of her husbands businesses, but she was not
involved in anything relating to research or finances. As well, she was not
certain of her quality in relation to her husbands estate. She identified
herself as the liquidator of the succession, and later stated that she was the
co-executor, with her daughter.
[27]
At paragraphs 32-34, inclusive of
his analysis, Angers J. commented:
[32] That being said, we must first and
foremost, in my opinion, determine whether, after the death of the insured, the
proceeds of the insurance policies held by the late Hien Vohoang, who had
not designated his [Translation]
estate as beneficiary, became part of the assets of his estate, so that the
Minister was warranted in making the assessments in issue. In other words, the
issue is whether the mere fact that a bank account was opened in the name of
the estate and money was deposited to it make that money an asset of the
estate.
[33] The word succession is defined by
Germain Brière in his collection Les Sucessions, published in 1994,
as follows:
[Translation]
In its original sense, the word succession
refers to the transfer to a living person or persons of the transferrable
rights and obligations of a deceased person.
In a derivative sense, the word succession
refers to all of the property and debts that are thus transferred, that is, the
patrimony of the succession.
Just now, we will address only the first
meaning. In that sense, succession is a method of transfer because of
death.
[34] It is therefore clear that succession
is simply a word that includes the transfer of rights and obligations of a
deceased to his or her family members, and that the devolution takes place
either by operation of law (succession ab intestat) or by will. Unless
it is stipulated that the deceaseds life insurance is payable [Translation] to my estate, the
proceeds are not part of the estate and do not comprise a right that is part of
the patrimony of the deceased, in this case the late Hien Vohoang.
[28]
In the course of concluding the
assessments were to be vacated, Angers J. at paragraphs 41 to 43, inclusive,
stated:
[41] According to the evidence of
record, the only source of cash available during the months after
Mr. Vohoangs death was the proceeds of two insurance policies for more
than $350,000, payable to the designated beneficiaries. In my opinion, that
money did not belong to the estate, and to all intents and purposes it was
under the control of Ms. Vohoang. It was during that period that she
decided, with the support of her late husbands partners, to invest money in
Speq Multimedia Inc. and lend money to the company to enable it to continue the
research undertaken and meet the requirements of the Commission des valeurs
mobilières du Québec. I accept Ms. Nguyens explanation regarding the
opening of the estates account without hesitation: the account was intended to
be used only for the loan and investment transactions relating to Speq
Multimedia Inc. and the account had nothing to do with her late husbands
estate. Isabelle Vohoang thus opened the account in the name of her late
fathers estate by mistake. I also accept that no money deposited in that
account was part of the assets of her fathers estate. Ms. Nguyen also
testified that the notary for the estate was not aware of the existence of that
account. In view of the notarys role in the liquidation of the estate (fees of
$5,212.95, according to Exhibit A‑4), it seems apparent to me that
if a real account in the name of the estate had been opened, he would have been
aware thereof.
[42] In my opinion, there was no reason
to open that account in the name of the estate, since all of the assets in the
estate were seized and all of the incidental expenses associated with the
estate were paid by Ms. Nguyen personally. On the question of the source
of the funds deposited in the estates account, I accept Ms. Nguyens
version without hesitation: the money came from her account and her childrens
accounts at the Caisse populaire and she simply repaid her children by the
three cheques in question, which, I would note, were all payable to the Caisse
populaire, which did not endorse them. It would appear that those cheques were
deposited to the childrens accounts, according to the reverse of the cheques
and to Ms. Nguyens testimony, which I also accept.
[43] I am satisfied, on a balance of
probabilities and notwithstanding appearances that this was not an account
opened for the purposes of the estate, but an account opened for the financing
of Speq Multimedia Inc., and the account was labelled as it was by mistake. The
withdrawals of funds from that account therefore cannot provide a basis for the
assessments in issue.
[29]
In the within appeals, the source
of the funds at issue pertaining to the subsection 160(1) assessment against
each appellant is the London Life non‑registered freedom fund segregated
fund investment. This appears to be a hybrid comprised of an insurance policy
and a regular investment. It is important to classify this fund as it will
dictate whether Arthur W. Higgins transferred the property, either directly or
indirectly, to the appellants.
[30]
The description of the investment
was provided by London Life in a letter tab 13 dated November 18, 2010 and
in another letter tab 14 dated November 21, 2012. The penultimate
paragraph of the letter tab 13 refers to the termination of a numbered
policy and states the proceeds thereof were payable to the beneficiary
designation on file and a copy of that document together with cheque
information was enclosed.
[31]
The Designation of revocable
beneficiary tab 9 in Part A thereof is clear that Karen Kinnis and
Sandra Sarfinson ( as she then was) were beneficiaries designated to receive
benefits payable on death pursuant to that specific policy/plan in which
Arthur W. Higgins was described under Client Information - at the top as Life
Insured/Annuitant.
[32]
The type of investment in the
within appeals is described by London Life at the website www.londonlife.com
as follows:
Benefits of Segregated Fund Policies
Put the benefits of segregated fund policies to work
for you.
Death benefit and maturity guarantees
Segregated
fund policies protect part or all of your capital investment. We offer two
types of capital guarantees- death and maturity guarantees.
Estate bypass
When
you designate a beneficiary other than your estate, the value of your
segregated fund policy flows directly to him or her, generally bypassing the
estate and potential probate fees.
Potential creditor protection
Laws
may protect a segregated fund policy in the event of bankruptcy or other action
by creditors. Its important to note that potential creditor protection depends
on court decisions, which can be subject to change and can vary for each
province. This protection cannot be guaranteed.
[33]
It is apparent that London Life,
Arthur W. Higgins, and the appellants considered that particular fund/plan to
fall within the category above-described and that eventual payment of any
remaining funds upon his death would be made by London Life pursuant to its
unambiguous contractual obligation. As a hybrid fund, although it was a
contract with London Life for an investment plan designed to produce a return,
it was also an insurance policy pursuant to which Arthur W. Higgins could
designate beneficiaries of any balance upon his death. The fact the designation
was revocable is a red herring. Since 1999, it had not been changed and Arthur
W. Higgins was withdrawing funds prior to his death in the same manner as one
could obtain funds from an existing life insurance policy with a cash-surrender
value or otherwise pursuant to the terms thereof.
[34]
Regarding the nature of the
segregated fund at issue, I conclude that the overarching feature was the life
insurance component. The Estate of the late Arthur W. Higgins was not party to
the contract with London Life. In paying each appellant the sum of $5,096.08 on
February 21, 2002, London Life was fulfilling a legal obligation. The Minister
assumed incorrectly that the segregated fund belonged in the same category
as an RRSP or RRIF. That is not correct according to the evidence which permits
me to accept the proposition that the right to confer a death benefit to named
beneficiaries was an integral and indivisible component of the policy/plan in
force. Arthur W. Higgins had the right to expect that London Life upon his
death - would abide by its contractual obligation to transfer the residue of
said fund to his two daughters in equal shares. Thereafter, upon proving
identity and providing a death certificate, payment was issued to each
appellant according to the terms of the contract between London Life and Arthur
W. Higgins.
[35]
I find the decision in Nguyen is
applicable to the within appeals. The amount paid to each appellant from that
segregated fund constituted life insurance proceeds which were payable to each
of them as a designated beneficiary and did not form assets of the Estate of
the late Arthur W. Higgins. Unlike the circumstances in Nguyen, there
were no indicia of any connection between the funds from that plan and the
Estate of the late Arthur W. Higgins which had no assets, was not administered
and, in relation to which, Kinnis specifically disavowed any legal status when
dealing with various representatives of CRA.
[36]
If I am wrong in this conclusion
and the subsection at issue is applicable, I find the effective date of the
transfer of property was February 21, 2002, when the cheques were issued to the
appellants. Counsel had submitted that there had been a transfer of a property
interest to them when the Designation of revocable beneficiary was signed by
their father on April 22, 1999, at a time when he had no tax liability. That
argument is intriguing in a metaphysical sense but any interest in property at
that time was transitory, impossible to quantity by current methodology, and
subject to the complete control of Arthur W. Higgins who could have cancelled
the policy/investment, withdrawn all the funds or removed the appellants as
beneficiaries. The value to the appellants of any interest under that
policy/plan was quantifiable only upon their fathers death and that event
pursuant to his contract with London Life triggered the process in accordance
with the terms thereof that caused payments to be issued to each appellant of
50% of the balance in that segregated fund.
[37]
Both appeals are allowed with one
set of costs. Each assessment - in the sum of $5,096.08 - issued to each
appellant pursuant to subsection 160(1) is hereby vacated.
[38]
As mentioned earlier, each
assessment issued to each appellant pursuant to subsection 160.2(2) is referred
back to the Minister for reconsideration and reassessment in accordance with
these Reasons.
Signed at Sidney, British Columbia, this 19th day of June 2013.
"D.W.
Rowe"
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