Docket: 2008-3359(IT)G
BETWEEN:
DIANA DE SANCTIS-PEDRO,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal
heard on common evidence with the appeal
of Adamo De Sanctis (2008-3360(IT)G)
on February 16, 2010, at Toronto, Ontario
and teleconference held on March 1, 2010,
at Ottawa, Ontario,
Before: The Honourable M.J.
Bonner
Appearances:
|
Counsel
for the Appellant:
|
Ravinder
Sawhney
|
|
Counsel for the Respondent:
|
Thang Trieu
|
____________________________________________________________________
JUDGMENT
The appeal from the assessment
made under subsection 160(1) of the Income Tax Act, notice of which is
dated February 25, 2008, is allowed, and the assessment is referred back to the
Minister of National Revenue for reconsideration and reassessment on the basis
that the Appellant’s liability under subsection 160(1) of the Act is
$13,912.05.
Each party shall bear their own
costs.
Signed at Toronto, Ontario, this 2nd day of March, 2010.
“M.J. Bonner”
Docket: 2008-3360(IT)G
BETWEEN:
ADAMO DE SANCTIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on common evidence with the
appeal
of Diana De Sanctis-Pedro
(2008-3359(IT)G)
on February 16, 2010, at Toronto, Ontario
and teleconference held on March 1, 2010,
at Ottawa, Ontario,
Before: The Honourable M.J. Bonner
Appearances:
|
Counsel for the
Appellant:
|
Ravinder Sawhney
|
|
Counsel for the
Respondent:
|
Thang Trieu
|
____________________________________________________________________
JUDGMENT
The appeal from the assessment
made under subsection 160(1) of the Income Tax Act, notice of which is
dated February 25, 2008, is allowed, and the assessment is referred back to the
Minister of National Revenue for reconsideration and reassessment on the basis
that the Appellant’s liability under subsection 160(1) of the Act is
$13,912.05.
Each party shall bear their own
costs.
Signed at Toronto, Ontario, this 2nd day of March, 2010.
“M.J. Bonner”
Citation: 2010 TCC 118
Date: 20100302
Docket: 2008-3359(IT)G
2008-3360(IT)G
BETWEEN:
DIANA DE SANCTIS-PEDRO
and ADAMO DE SANCTIS,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bonner D.J.
[1] The Appellants
appeal from assessments under section 160 of the Income Tax Act (the “Act”).
[2] The Appellants are,
respectively, the daughter and son of Anthony De Sanctis. The three
are therefore ‘related persons’ within the meaning of subsection 251(2) of the Act
and are deemed by paragraph 251(1)(a) of the Act not to deal
with each other at arm’s length.
[3] On May 31, 2001, a
house which was owned by Anthony De Sanctis and in which he had lived with his
son and daughter, was sold. The cash payable by the purchaser on closing was $27,824.10.
[4] On the same day, a
condominium residence was purchased using the $27,824.10 cash proceeds from the
sale of the house. Title to the condominium was conveyed not to Anthony De
Sanctis but rather to the Appellants. It was used by Anthony De Sanctis and his
children as a residence.
[5] At the time of the
transactions, Anthony De Sanctis was liable to pay more than $69,000.00 under
the Act.
[6] On February 14,
2008, the Minister of National Revenue assessed the Appellants under section
160 of the Act in respect of the transfer of the cash. Each assessment
was for $27,824.10. It is those assessments which are under appeal. The appeals
were heard together on common evidence.
[7] Counsel for the
Respondent conceded at the commencement of the hearing that the liability of the
Appellants under section 160 could not exceed $13,912.05 each, and that
judgment should issue accordingly.
[8] Section 160 of the Act
provides in part:
160(1) 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) …
(c) a
person with whom the person was not dealing at arm’s length,
the
following rules apply:
(d) …
(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.
[9] The Appellants did not lead any evidence to prove that
Anthony De Sanctis did not transfer the net proceeds from the sale of his house
to them as had been found by the Minister on assessment. The essence of the
position taken by the Appellants at the hearing was that they gave
consideration to their father for the transfer of the money. Paragraphs 2 and 3
of the Notices of Appeal read:
2. The family
income was low throughout the living arrangements in the house and the
condominium. To keep the family afloat, the father and the children made a
contractual arrangement such that the children would pay for their living
expenses including mortgage payment contributions, hence providing
consideration for their vital living arrangement.
3. The enforceable
legal agreement enabling the father in part to pay the mortgage and vital
expenses from the child’s contribution and own expense, amounts to an arm’s
length relationship disengaging the potential for applying s. 160(1). That
section applies only in relationships where there is a tax benefit intended to
be obtained by passing the benefit on to a relative with no consideration for
such transfer of benefit.
[10] The Appellants both
testified that, during the years leading up to the transaction, the income of
the family was low, the family was struggling financially and there was an oral
arrangement made under which the Appellants contributed as much as possible to
the cost of food, shelter and other living expenses of the household. Each
stated that the contributions were made by reason of a moral obligation. The amount
of the contribution was left to be determined from time to time by the
contributor. The contributions were made by payments of cash to the father. No
record was kept of the amounts paid. The arrangements could not, in my view, be
characterized as enforceable, legal agreements as alleged in the Notices of Appeal.
It is obvious that there was no intent to create a binding contractual agreement.
[11] It is not possible
to estimate with any reasonable degree of accuracy the amounts paid to Anthony
De Sanctis by his children pursuant to the arrangements. Some evidence was led
with respect to the earnings of the children during the five years prior to the
sale of the house in 2001. This was done in order to demonstrate the ability of
the children to make payments to their father. Diana De Sanctis-Pedros’ annual
earnings were modest. During 1997, 1998 and 1999, they did not exceed $6,697. During
2000 and 2001, the annual figures did not exceed $28,500. Adamo’s annual income
did not exceed $8,000 during any of those years. There was no basis in the evidence
for making a leap from what was earned by either Appellant to what he or she
decided to pay to their father.
[12] Section 160 was
enacted to assist in the collection of taxes owing by counteracting the attempts
of reluctant taxpayers to put their assets beyond the reach of the Minister by means
of a transfer of such assets into friendlier hands for nothing or for consideration
less than the market value of the assets transferred.
[13] It is not necessary to
consider whether the transfer of the cash from the sale of Anthony De Sanctis’
house was a deliberate attempt to prevent the Minister from seizing the money.
In Wannan v. Canada,
Sharlow J. noted that:
3 Section 160 of the Income Tax Act is
an important tax collection tool, because it thwarts attempts to move money or
other property beyond the tax collector's reach by placing it in presumably
friendly hands. It is, however, a draconian provision. While not every use of
section 160 is unwarranted or unfair, there is always some potential for an
unjust result. There is no due diligence defence to the application of section
160. It may apply to a transferee of property who has no intention to assist
the primary tax debtor to avoid the payment of tax. Indeed, it may apply to a
transferee who has no knowledge of the tax affairs of the primary tax debtor. …
[14] The arrangements
between the Appellants and Anthony De Sanctis whereby they made voluntary payments
from time to time to assist with the living expenses of the household can have
no bearing upon the application of section 160 to the transfer now in question.
Subparagraph 160(1)(e)(i) limits the liability of the transferee to the
excess of the fair market value of the property transferred over the
consideration given for that property. The evidence given by the Appellants
makes it quite clear that the payments which they made were not “…
consideration given for the property …” within the meaning of the subparagraph.
The payments made by the Appellants to their father were quite unrelated to the
transfer of that property. They were, as described by the witnesses,
contributions to the shared cost of running the family household, nothing more.
[15] As already noted,
the evidence fails to establish how much money was paid by either of the Appellants
to their father. It was not suggested that any attempt was made to keep a
record. No doubt this is due to the fact that the Appellants and their father
did not intend to form an enforceable agreement requiring either of the Appellants
to pay any particular amount at any particular time as consideration for a transfer
of property.
[16] In my view, no
consideration was given by the Appellants for the transfer by Anthony De
Sanctis to them of the proceeds from the sale of his house. Section 160
therefore applies.
[17] The appeals will be
dismissed. Success was divided. The parties shall bear their own costs.
Signed at Toronto, Ontario,
this 2nd day of March, 2010.
“M.J. Bonner”
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