Savoie v. The Queen, 93 DTC 552, [1993] 2 CTC 2330 (TCC)

Bowman, T.C.C.J.:—This appeal is from an assessment made under section 160 of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") by the Minister of National Revenue against the appellant in the amount of $106,298. The basis of the assessment is that on March 25, 1988 the appellant’s husband Gilbert Savoie transferred to her three parcels of land having a value of at least $106,298 at a time when he was indebted to Her Majesty the Queen in the amount of $194,081.88. At trial it was conceded by counsel for the respondent that Gilbert Savoie's indebtedness under the Income Tax Act at the time of the transfer was $84,008.31 and that accordingly, whatever other disposition might be made of the appeal the assessment would have to be reduced to that figure.

Mrs. Savoie's position was that at all times she held a 50 per cent beneficial interest in the three properties notwithstanding the fact that legal title, prior to the transfer of March 25, 1988, was registered in her husband's name. Counsel for the appellant did not challenge the fair market value of $106,298 for the three properties as determined by the Minister or the amount of Mr. Savoie's indebtedness under the Income Tax Act of $84,008.31. Although the notice of appeal raises the question of the constitutionality of section 160 of the Income Tax Act, and notice thereof was duly served on the Attorneys-General of the provinces and territories under section 57 of the Federal Court Act, counsel advised the Court that he was not proceeding with the constitutional argument. His position was that the assessment against Mrs. Savoie should not exceed one half of $106,298 or $53,149, the fair market value of the interest that he contends Mr. Savoie had in the properties.

The only evidence was adduced through Mrs. Savoie, her husband having passed away less than a month before the trial. The facts upon which her assertion of a 50 per cent interest in the property are as follows.

The appellant and her husband Gilbert Savoie were married on November 26, 1957 and remained married until his death on February 19, 1993. They lived with Gilbert's parents in the family home until 1962, when Gilbert's father conveyed to Gilbert the parcel of land at Belleford, New Brunswick comprising about 95 acres where the appellant and her husband have since that time resided. The deed is in favour of Gilbert G. Savoie. He did not sign the deed and the appellant is not mentioned in it. I doubt that he read it and I have no doubt that she did not.

The price was $1,000. After they moved onto the property a small store was opened in the house. The appellant ran the store and her husband earned money cutting wood from his father's woodlot. The money from these two sources was used to pay the indebtedness to Gilbert Savoie's parents. Counsel for the respondent pointed out that it was not established precisely how much of the money earned by the appellant from running the store was used to pay off the indebtedness on the home and how much went to running the house. After 30 years this is hardly surprising. The appellant and her husband appear to have kept no records. Indeed, they did not even have a bank account at that time. It seems obvious that the rather meagre earnings from both the woodcutting and the store were commingled and used indiscriminately for all necessary expenditures, both running the household and paying off the indebtedness on the house. The factual inference is clear that both Mr. and Mrs. Savoie contributed to paying for the property at Belleford.

When they moved onto the property the house was old and in a state of disrepair. The appellant finished the upstairs, painted the downstairs and put in the kitchen floor herself. When a new house was built on the property in 1974 she painted the entire inside of the house, made drapes and decorated the house.

Gilbert earned a living cutting wood. At the end of the day the appellant took care of the horses that he used in hauling logs.

In addition to all of her other tasks and responsibilities the appellant bore Gilbert eight children, whom she raised.

In 1986 another lot in Beaverbrook Settlement was purchased for $3,500 from Gilbert's sister. Again the deed was made out to Gilbert alone, although the money to pay for it came out of the joint account that the appellant and her husband by then maintained. In the same year Gilbert's father conveyed the family home to him for no consideration. It was alleged that there was reserved out of the grant a life estate in favour of the parents, but no documentary evidence in support of this was adduced. The parents continued to live on the property and indeed after the death of Gilbert's father his mother continues to occupy the property. No life estate in law has been proved but I think it probable that there was an implicit understanding that the parents could live there during their lifetime.

The question is therefore whether these facts justify a finding that the appellant had a 50 per cent beneficial interest in the three parcels of land. I have accepted Mrs. Savoie's testimony without reservation. She was a credible witness who gave her evidence in a straightforward, albeit rather diffident manner, without any attempt to embellish or exaggerate. She testified that it had always been her intention that she and her husband should own the properties together. I accept this although it may be that she and her husband did not formulate the idea quite so articulately. I think it is fair to say that there was a tacit understanding between the husband and wife that the property was "their" property rather than "his" property. That understanding has not heretofore been challenged.

Mr. and Mrs. Savoie are not educated persons. They did not go beyond the grade nine level in school. Concepts of joint ownership, legal as opposed to beneficial ownership and trusts are foreign to them. What is clear beyond any doubt is that they were a team and what they acquired they acquired as a team and as a result of their joint efforts. Mrs. Savoie has, in the hard life she has led, contributed her all to common weal of the family and it would be unconscionable to say that her entitlement to her just share therein depended upon a form of conveyance the legal implications of which were not appreciated by her

The situation here differs from that of spouses who, with a full appreciation of the legal consequences of what they are doing, choose that property be held jointly, or solely by one spouse or in any other of the variety of ways in which property can be owned. Such deliberate choices must be respected because the legal form is consistent with the economic reality and the informed intentions of the parties.

Counsel for the appellant put his case on two alternative bases. He argued first that there was a resulting trust in favour of the appellant of 50 per cent of the properties and, alternatively, a constructive trust.

The development of these two legal concepts has followed parallel but somewhat different paths in recent years in Canada. That development is outlined in a series of decisions of the Supreme Court of Canada. I shall refer to three: Pettkus v. Becker, [1980] 2 S.C.R. 834, 117 D.L.R. (3d) 257, 34 N.R. 384, Palachik v. Kiss, [1983] 1 S.C.R. 623, 146 D.L.R. (3d) 385, 33 R.EL. (2d) 225 and Sorochan v. Sorochan, [1986] 2 S.C.R. 38, 29 D.L.R. (4th) 1, 2 R.F.L. (3d) 225.

In Pettkus v. Becker, Dickson, J., as he then was, in describing the doctrine of resulting trust observed at pages 841-42 (D.L.R. 269, N.R. 391):

Resulting Trust

This appeal affords the Court an opportunity to clarify the equivocal state in which the law of matrimonial property was left, following Rathwell v. Rathwell, [1978] 2 S.C.R. 436, 83 D.L.R. (3d) 289, [1978] 2 W.W.R. 101.

Broadly speaking, it may be said that the principles which have guided development of recent Canadian case law are to be found in two decisions of the House of Lords: Pettitt v. Pettitt, [1970] A.C. 777 and Gissing v. Gissing, [1971] A.C. 886. In neither judgment does a majority opinion emerge. Though it is not necessary to embark upon a detailed analysis of the two cases, the legacy of Pettitt and Gissing should be noted. First, the decisions upheld the judicial quest for that fugitive common intention which must be proved in order to establish beneficial entitlement to matrimonial property. Second, the Law Lords did not feel free to ascribe or impute an intention to the parties, not supported by evidence, in order to achieve “equity” in the division of assets of partners to a marriage. Third, in Gissing four of the Law Lords spoke of “implied, constructive or resulting trust" without distinction.

He then went on to comment at some length on the unsatisfactory nature of the "common intention" test and stated at page 843 (D.L.R. 270, N.R. 392) that:

The sought-for “common intention” is rarely, if ever, express; the courts must glean “phantom intent" from the conduct of the parties. The most relevant conduct is that pertaining to the financial arrangements in the acquisition of property. Failing evidence of direct contribution by a spouse, there may be evidence of indirect benefits conferred: where, for example, one partner pays for the necessaries while the other retires the mortgage loan over a period of years, Fribance v. Fribance, [1957] 1 All E.R. 357.

He referred on the same page to the artificiality of the common intention approach, citing Professor Donovan Waters. As a result of the difficulties inherent in the application of the resulting trust doctrine, Laskin, J. as he then was, introduced the concept of constructive trust. Dickson, J. stated at pages 843-44 (D.L.R. 270, N.R. 25):

It is imposed without reference to intention to create a trust, and its purpose is to remedy a result otherwise unjust. It is a broad and flexible equitable tool which permits courts to gauge all the circumstances of the case, including the respective contributions of the parties, and to determine beneficial entitlement.

In Pettkus the majority of the Supreme Court was not prepared to infer or presume common intention where the trial judge had made an explicit finding to the contrary and the Ontario Court of Appeal did not overrule that finding. Accordingly it was necessary to invoke the doctrine of constructive trust. Dickson, J. stated at page 847 (D.L.R. 273, N.R. 396) that:

The principle of unjust enrichment lies at the heart of the constructive trust.

and that three requirements must be satisfied as a condition to a finding of unjust enrichment:

. . . an enrichment, a corresponding deprivation and the absence of any juristic reason for the enrichment.

It is fair to conclude from the above that whereas the concept of resulting trust requires a common intent to create a trust between the legal owner and the person who seeks the status of cestui que trust, no such intent is necessary in the case of constructive trust. I obviously have no direct viva voce evidence from the deceased husband from which I can infer a common intent that the property be beneficially owned jointly but I have no difficulty in finding such an intent from Mrs. Savoie's evidence and from all of the surrounding circumstances, including her working as a team with her husband, her contribution to the family finances, the pooling of their resources and generally the fact that they regarded their family assets as common assets. As Dickson, J. stated in Pettkus at page 843 (D.L.R. 270, N.R. 392):

The most relevant conduct is that pertaining to the financial arrangements in the acquisition of property.

Had I not found such a common intent I would still have found that her entitlement to one half of the property was based on the doctrine of constructive trust. For the husband to own all of the property and the appellant no portion thereof would involve an enrichment, a corresponding deprivation and no juridical reason for the enrichment.

It was suggested in argument that the doctrine of constructive trust is essentially an equitable remedy and that its application required an order of a court of competent jurisdiction such as the superior court of a province. It is obvious that the Tax Court of Canada is not such a court. As a statutory court it lacks the equitable jurisdiction exercised by provincial superior courts. In a dispute between this taxpayer and the Minister of National Revenue under section 160 of the Income Tax Act, the issue is the extent of the deceased transferor's interest in the transferred property. It is unquestionably within this Court's jurisdiction to determine in such a dispute whether the appellant had a beneficial interest in the property prior to the formal transfer of title to her. In the cases referred to above the legal owner disputed the spouse's entitlement to a beneficial interest in the property, and the Court in exercise of its equitable jurisdiction had to order the recalcitrant spouse to recognize the other spouse's beneficial interest in the property either by a conveyance of that interest or the payment of money. Here the conveyance has already taken place.

In Nelson Estate v. M.N.R., [1990] 2 C.T.C. 2525, 91 D.T.C. 37, Sarchuk, T.C.C.J. discussed this question at some length but, having concluded that the evidence did not support the existence of either a resulting trust or a constructive trust, he left the matter open for determination at a later date. I have found, on the evidence in this case, that all of the elements necessary to support both a resulting trust and a constructive trust of a 50 per cent interest in the property are present and I must therefore answer the question which my brother Sarchuk, T.C.C.J. left open. [1] I do not think that the doctrine can be invoked only by a court having jurisdiction to make a declaration as between two conflicting spouses. It is a substantive doctrine that goes to a determination of the true ownership of the property — a matter that is germane in an income tax appeal where the Minister of National Revenue seeks in effect, to cause a spouse's liability for tax to follow property that he says was owned by the husband and transferred to his wife. [2] This court has an obligation in such a dispute to determine the true ownership. [3]

The appeal is allowed with costs and the assessment referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that immediately prior to the transfer of the three properties to her by her husband the appellant had a 50 per cent beneficial interest in the properties.

Appeal allowed.