Beique v. The Queen, 78 DTC 6452, [1978] CTC 646, aff'd 81 DTC 5050 [1981] CTC 75 (FCA)

Dubé J:—This is an appeal from the decision rendered on September 16, 1975 by the Tax Review Board, dismissing plaintiff’s (appellant’s) appeal against his income tax assessment for 1971.

- The facts may be summarized as follows.

Appellant is by profession an attorney and municipal judge of the city of Lasalle, Quebec. He married Dame Jacqueline Sicotte on August 31, 1939, after entering into an antenuptial contract adopting the regime of separation of. property. On December 2, 1971, the two spouses adopted the regime of community of movables and acquests by contract notarized on that date, homologated by judgment handed down on March 31, 1972 and registered at Montreal on June 5, 1972.

On April 26, 1972 appellant filed an income tax return by which each of the spouses claimed half of the income for the fiscal year (from February 28, 1971 to February 27, 1972).

The income, as shown in the summary of the return, was derived from the city of Lasalle, employment, rentals and investments.

Appellant alleged that under his new matrimonial regime the income of the two spouses belongs to the community and that consequently each of the spouses is liable for tax on only half of the income.

Respondent contended that appellant’s new matrimonial regime did not take effect until the date it was registered, that is on June 5, 1972, and in no way affects the 1971 fiscal year. Alternatively, even if the new regime were in effect during the fiscal year in question, the decision of the Supreme Court of Canada in 1961 in Frank Sura v MNR, [1962] CTC 1; 62 DTC 1005, on appeal, to the effect that in a community of property the tax cannot be divided between the two spouses, also applies to the community of movables and acquests established by Bill 10 in 1970.* [1]

First of all, therefore, it must be determined on what date the new matrimonial regime took effect. If it took effect during the fiscal year in question, it will then have to be established whether, in fact, under the regime of community of movables and acquests income tax can be divided between the spouses.

Clause 1 of the contract of December 2, 1971 between the spouses stipulates that the new regime they are adopting takes effect retroactively to their marriage:

THE SPOUSES adopt the regime of community of movables and acquests with effect as of the date of the solemnization of their marriage, and accordingly agree that all personal and real property acquired since the solemnization of their marriage constitutes the property of the community according to the provisions of Arts 1272 et seq of the Civil Code of the province of Quebec.

It is important to examine the scope of the new articles of the Civil Code relative to marriage covenants as amended by Bill 10 in 1970, as they apply not only to spouses but also to third parties.

Article 1265 allows the spouses to modify their matrimonial regime “provided that . . . they do not prejudice . . . the rights of their creditors”. Article 1266 provides that any modification of the regime must be established by notarial deed: “it has effect only if homologated by the court of their domicile”. Article 1266b reads as follows:

The act entered into in virtue of the provisions of articles 1264 and 1266 has effect with respect to third persons only by the registration of a notice in the central register of matrimonial regimes.

The aforesaid Article 1264 applies to changes in matrimonial covenants before the solemnization of the marriage and does not concern us here.

On the other hand, appellant states that Article 1261 provides that every matrimonial regime takes effect retroactively to the date of solemnization of the marriage.

The matrimonial regime, whether it be legal or conventional, takes effect from the day the marriage is solemnized; the parties cannot stipulate that it will take effect at any other period.

In an article published in the Revue générale de droit civil, 1970, entitled “Le Bill 10 depuis le premier juillet 1970’’, Roger Comtois wrote at 228:

All the property acquired by the spouses for valuable consideration during the marriage would fall into the community or into the partnership of acquests. If the spouses decided to adopt a new regime, it was because the new one was better, and it must have been so ever since the marriage. In principle, the new law has retroactive effect, in so far as the new law is better than the old one.*

Michel Légaré takes the opposite stance in an article, ‘‘De la rétroactivité ou de la non-rétroactivité du changement de régime matrimonial”.* [2] His conclusion at 160 may prove to be prophetic:

We have certainly leaned toward one theory more than another, but a merely theoretical opinion is not worth much with regard to the direction a practitioner must follow when he has to cope with such a problem. Will we have to wait for a court decision to know how to proceed, or will the legislator act quickly enough to resolve the problem through preventive action? We wager thai we will have to wait for a judicial decision!

In an annotation to the above-cited article, Mr Comtois changes his mind in the following terms:

The opinion expressed by the author is contrary to what we had proposed shortly after Bill 10 was passed. We are quite prepared to change our mind in view of the arguments put forth by the author and by the authorities he cites. A special committee of the Civil Code Revision Office. responsible for revising the law on matrimonial regimes, is now proposing a precise text: the modified matrimonial regime , takes effect from the day. the deed is made. provided it is homologated. The question appears to be resolved. It is to be hoped that this amendment will be adopted as soon as possible.

It is a fundamental principle of law that. unless otherwise stated, an enactment is presumed not to have retroactive effect. and the parties to a contract like this one cannot claim to attribute to their regime a retroactive effect that the enactment does not provide. Article 1261 must alSo be considered in context. This article does come after Article 1260 and is related to it: in the absence of special agreements, the spouses are subject to the regime of partnership of acquests, and whatever the regime. it takes effect from the day the marriage is solemnized: “the parties cannot stipulate that it will take effect at any other period" in the future. The day the marriage is solemnized is therefore the starting point of the spouses’ first regime. It is not and cannot become the start of a subsequent regime.

Furthermore, from a practical standpoint. giving. a new regime acquired later in life retroactive effect to the date of the marriage would plunge society into a state of chaos and even ridicule. Could the numerous real estate transactions in the course of a lifetime under one regime be rescinded by a spouse on the setting up of a new regime? Such retroactivity might be beneficial to the spouses, but it would tend to prejudice the interests of third parties. In my view, that is precisely what the legislator contemplated in Article 1266b when he provided that. the act has effect with respect to third parties only by the registration of a notice in the central register. It is only after such notice that the public is protected.

Other authors have also examined the interpretation of these new provisions of the Civil Code and agree that the new regime is not retroactive to the marriage, and that with regard to third parties the deed has effect only by registration.* [3] The following conclusion by Professor Jean-Guy Bergeron should be kept in mind:t [4]

With respect to third parties. Article 1266b of the Civil Code states that the change in the covenant “has effect only by the registration of a notice in the central register of matrimonial regimes”. On the basis of this wording, we have to consider only one date, that of the registration; the wording does not imply any condition precedent: it is equivalent to the expression “it has effect only from the date of registration . . .”.

Since the Minister is obviously a third party and appellant’s new regime takes effect only on the date of registration, June 9, 1972, it therefore follows that during the 1971 fiscal year appellant was governed by the original matrimonial regime, namely separation of property. I therefore do not have to rule on the effect that the community of movables and acquests might have on his taxable income.

The income of a spouse governed by the regime of separation of property is obviously taxable in his hands. Appellant is therefore liable for tax on all the income from his profession, properties and investments. That income consequently includes all the sums in question, with the exception of one which poses special problems.

In his tax return appellant declared under a "Statement of Investment Income’’ the sum of $377.39 from the taxable Canadian corporation Brault Guy Chaput. In a letter addressed to counsel for the respondent, dated August 24, 1977 and filed at the hearing, appellant claimed that this sum represented half of his wife’s personal investment dividends. Form T5, ‘‘Statement of Investment Income’’, attached to the letter, indicates that the recipient is ‘‘Mrs Jacqueline S Béique”.

Appellant’s wife, described in the heading (when she was mis-en- Cause) as ‘president, general manager and domestic arts technician’’, was not engaged in gainful employment during the period in question. She worked at home as a wife and mother. As evidenced by the copies of cheques filed in court, her husband gave her two $125 cheques a month and a $100 cheque every week. She used that money to provide necessaries for the family. She also saved money which, she Says, was largely income from the properties.

The wife brought into her marriage in 1939 her trousseau, movables, wedding gifts and some savings. These savings helped appellant acquire a parcel of land in the town of Lasalle in 1940 at a cost of $1,000. According to his testimony, this comprised $700 in gifts and $300 in savings. The newlyweds received financial assistance from the wife’s father in building their home. In 1940 appellant signed a $6,000 mortgage in favour of his father-in-law; it was written off in 1956. According to the wife, the gift from her father was worth at least $14,000, having regard to the value of the home which she placed at $20,000.

In 1941, they bought other adjacent lots, this time in the wife’s name, from the same vendor for the sum of $500. According to the wife’s testimony, the $500 to purchase this land was given to her by appellant. This purchase gave her the right to vote, and added to the size of the first parcel of land. Parts of these lots were resold by the wife in 1962 for $15,000, in 1964 for $2,000 and in 1966 for $14,000. It is the money from these transactions which enabled appellant to write cheques to his wife and which he invested in her name in Brault Guy Chaput.

Counsel for the respondent alleged that under subsection 21(1) of the Act,* [5] the income in question should be deemed to be income of the husband as transferor:

21. (1) Where a person has, on or after August 1, 1977, transferred property, either directly or indirectly, by means of a trust or by any other means whatsoever, to his spouse, or to a person who has since become his spouse, the income for a taxation year from the property or from property substituted therefor shall, during the lifetime of the transferor while he is resident in Canada and the transferee is his spouse, be deemed to be income of the transferor and not of the transferee.

It is not apparent from the said transactions that the income from the investment in Brault Guy Chaput derived from the wife’s funds. Unfortunately for appellant, the burden of proof rests on him. He certainly did not establish to the satisfaction of the Court that his wife’s investments were made from her own personal funds. According to her, the $500 used to purchase the lots in question had been given to her by her husband, and in the final analysis the investment income in question derives from that sum.

For all these reasons, the appeal must be dismissed.