Citation: 2012 TCC 338
Date: 20120927
Dockets: 2009-2627(IT)G
2009-2689(IT)G
BETWEEN:
VIKRAM NANDAKUMAR,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bocock J.
[1]
These two appeals
involve the transfer of four parcels of real property (the “Transfers”) from a
father and mother jointly to their son, either solely or in common with his
mother. The father had substantial arrears of tax. In turn, the Minister of
National Revenue (“Minister”) reassessed the Appellant in respect of the Transfers
under the provisions of subsection 160(1) of the Income Tax Act (the “Act”).
Simply put, under that provision, if the transferor was liable to pay tax, the
property was transferred, the transferee was a person not dealing at arm’s
length with the transferor and the fair market value of the property
transferred exceeds the consideration given by the transferee, then the transferee
is liable for the value of the property less the consideration tendered to the transferor.
I. Summary of
Case, Issues & Principles
[2]
While there were minor
disagreements as to the fair market value of the properties transferred to the
Appellant, the overriding question before the Court is the value of
consideration paid by the Appellant as a transferee. In respect of subsection
160(1) of the Act, it should be noted that that tax liability of the transferor
is not disputed, a transfer did occur and the Appellant did not deal at arm’s
length with the transferor.
[3]
In August of 2000, the
property known as 4502 Martingale Avenue, Langley, British Columbia (Parcel
Identifier (“PID”) number 010-536-094) (“Martingale Property”) was transferred
for $1.00 and natural love and affection, but bore a market value transfer of
$279,000.00. This represents the issue in matter number 2009-2627(IT)G.
[4]
With respect to matter
number 2009-2689(IT)G, three properties were transferred as follows:
|
Address
|
Referred
to As
|
Transfer Date
|
Expressed
Consideration
|
FMV per Transfer
|
|
#711-6081 Number Three Road,
Richmond, British Columbia
PID number 024-017-167
|
“Number Three Road Property”
|
June 21, 1999
|
$1.00 and natural love and affection
|
$32,000.00
|
|
#711-6081 Number Three Road,
Richmond, British Columbia
PID number 024-017-167
|
“Number Three Road Property”
|
August 17, 2000
|
$1.00 and natural love and affection
|
$33,900.00
|
|
#30-10080 Kilby Drive
Richmond, British Columbia
PID number 018-506-283
|
“Kilby Property”
|
June 21, 1999
|
$1.00 and natural love and affection
|
$90,200.00
|
|
#30-10080 Kilby Drive
Richmond, British Columbia
PID number 018-506-283
|
“Kilby Property”
|
August 17, 2000
|
$1.00 and natural love and affection
|
$88,250.00
|
|
6031 Thetis Place
Richmond, British Columbia
PID number 001-912-909
|
“Thetis Property”
|
August 17, 2000
|
$1.00 and natural love and affection
|
$520,000.00
|
[5]
Legally, the Minister has
assumed that the Transfers to the Appellant, who is the son of the tax debtor, were
at nominal consideration as prima facie witnessed by the registered transfers.
The Appellant bears the onus of dislodging those assumptions, such that the
Minister’s assumptions will stand unless demolished by evidence tendered by the
Appellant which must prove on the balance of probabilities that consideration (other
than the nominal consideration expressed in the Transfers and recorded in the Land
Titles system) was tendered by payment, through evidence of indebtedness or
other consideration made by the transferee to the transferor.
[6]
Whether consideration equal
to the fair market value of the lands was tendered is fundamentally the entire
issue to be decided and that issue formed the primary factual determination ascertained
by the Court. To that point, although identified at the outset as a matter in
dispute, no meaningful, direct evidence by way of testimony, expert report or
documents was adduced by the Appellant to contest the Minister’s assumptions
regarding fair market value of the properties.
A. Respondents’
Assumptions
[7]
The following
assumptions of the Minister were not challenged by the Appellant:
a)
The Appellant and his
parents, Nanda Duraisami (“Father”) and Malathi Nandakumar (“Mother”), were
operating at non-arm’s length.
b)
The Father was involved
in an illegal telemarketing scheme whereby through foreign lotteries he
obtained funds from elderly people by having them send bogus pre-qualification
fees. Such activity ultimately resulted in the Father’s conviction for fraud.
c)
From time to time
certain funds were given by the Father to the Appellant for depositing into
joint bank accounts held with the Mother and also for the Appellant’s sole
benefit.
d)
The Father failed to
pay the sum of $4,225,985.00 to the Canada Revenue Agency.
[8]
The following factual
issues were meaningfully in dispute or represented factual matters in respect
of which the Appellant led evidence:
a)
The amount of
consideration falling into the category of “other consideration” was a major
point. In respect of Number Three Road Property the Appellant contended that he
was owed $10,000.00 (the “Appellant Debt”) from his parents as reflected by a
registered mortgage and also that there was a registered mortgage in the amount
of $56,550.00 (the “Vimal Debt”). The Vimal Debt was purportedly owed by the transferors
to a transferor controlled private company, Vimal Enterprises Limited, which debt
the Appellant assumed upon transfer; and
b)
The Appellant contends
that he assumed the debt of his Father to his Father’s sister, Usha Surendra, in the amount $658,650.00
(the “Aunt Debt”), the assumption of which debt constituted an assumed
liability and valuable consideration paid by the Appellant to the Father. A
mortgage securing this Aunt Debt was registered against the properties.
[9]
It was submitted that
the extinguishment of the Appellant Debt by conveyance and the assumption of
the Vimal Mortgage and the Aunt Debt together constituted valuable consideration
satisfying the final requirement of subsection 160(1)(e) of the Act
by proportionally increasing the consideration given by the Appellant for the properties
to an amount equal to, or greater than, the fair market value of the properties.
[10]
The assumption of other
third party debt, excluding the Appellant Debt, the Vimal Debt and the Aunt
Debt, by the Appellant was accounted for by the Minister as consideration paid
upon the Transfers.
B. Details of
Appellant’s Factual Assertions
[11]
The Appellant attempted
to demolish the Minister’s assumptions with the following tendered evidence:
a)
The Aunt Debt was
purportedly reflected in a simple promissory note (the “Note”) dated December
15, 1999. The Note was made on a joint and several basis by the Appellant and
his Mother. The Payee is the Appellant’s Aunt. In turn, the Appellant offered
evidence that the Aunt Debt, evidenced by the Note, was secured by two distinct
mortgage documents. The first document was registered against title to the
Kilby Property and the Thetis Property. The second mortgage document was
registered against the Martingale Property and the Number Three Road Property.
b)
This Aunt Debt was further
evidenced by the purported repayment of certain monies to the Aunt from the
sale proceeds of two, but not all of the properties when sold.
c)
In direct testimony and
upon cross-examination, the Appellant, in respect of the Aunt Debt:
i)
relied entirely upon
his Father and Mother as to its existence, quantum and validity;
ii)
assumed the Aunt Debt
and arrangement by signing a direct Note (as opposed to an assumption
agreement); and
iii)
permitted repayment of
certain sums when certain encumbered properties were sold.
d)
In cross-examination,
the Respondent obtained the following factual admissions from the Appellant:
i)
the Aunt Debt was
created entirely offshore and aside from the Appellant’s reliance on his
Father’s assertion of its existence was not reflected through any collateral,
direct or documentary evidence as between the primary debtor and creditor;
ii)
although there was no
direct evidence of receipt for repayment of the Aunt Debt by the Aunt, the only
indirect evidence of repayment revealed that all payments were being directed
to the Appellant’s Father as a conduit for repayment to the Aunt;
iii)
the mortgage discharge
of the security for the Aunt was executed on the same day as the mortgage
security was executed;
iv)
the Appellant gave
contradictory evidence as to whether he ever executed a promissory note at
examination for discovery, but was much more definitive at trial that he had
done so. Similarly, his evidence regarding meeting the Aunt in 1999 was
contradictory;
v)
at the age of 18 or 19
years, although the Appellant purported not to be a full participant in the
minutiae of these business matters, he was the registered owner of three motor
vehicles, a number of real properties (both residential and commercial) and was
the owner of a stock trading account provided by his Father so the Appellant
could “learn the ropes” of stock trading;
vi)
the Father was charged
and convicted of lottery fraud in the United States at the time of the Transfers;
and
vii)
the Appellant was
required pursuant to a British Columbia Supreme Court Order to pay the sum of $36,000.00
on deposit in the stock trading bank account to the Crown in satisfaction of a joint
restitution order to which the Appellant was subject.
e)
With respect to the
Vimal Debt and Appellant Debt, aside from the registered mortgage security, no
collateral notes, advances of monies or other documentary evidence was tendered
to prove the existence of the actual debt, loan or advance. The Appellant’s vive
voce testimony was the sole evidence of the existence of any such debt,
loan or advance.
C. Credibility
[12]
There is no question
that the Appellant has been a loyal and dutiful son, but the inconsistencies in
his testimony abound where the Appellant states that:
a)
he was too young, naïve
or distracted in order to pay attention to the execution of this Note in the
amount of some $658,650.00, but at the same time, he was learning the ropes in
the equity markets with a trading account originally worth much more than the
$38,000.00 balance which remained at the time that the account was surrendered
by him to the authorities;
b)
at the age of 18 years,
he was able to lend $10,000.00 to his parents, when his only declared source of
taxable income at the relevant time was $1,100.00 one year and “Nil” the next
year. He purported to amass the sum used for the loan from birthday gifts and
odd jobs; and
c)
although the Appellant
purports not to have paid attention to the financial details surrounding the Note
in the substantial amount of $658,650.00, he was nonetheless able to recall
with precision something as minute as the business purpose and length of time
of holding numerous real properties occurring during the same period.
D. The Law
[13]
With respect to subsection
160(1) of the Act, the Federal Court of Appeal in its decision in Livingston
v. Canada, 2008 FCA 89, has stated that intention is irrelevant as a precondition
to the utilization of subsection 160(1). If the four enumerated grounds exist,
the transferee is liable under the subsection.
[14]
Therefore, if the transferor
is liable for the tax, a transfer of property occurs to a non-arm’s length
party and the fair market value of property exceeds the fair market value of
consideration tendered, the tax assessed for the difference is payable by the
transferee.
[15]
The first three grounds
are either admitted or are not in dispute.
[16]
On the final ground the
Court makes the following findings:
1.
The assumption of the
Minister that no actual debt existed between the Father and Appellant’s Aunt
has not been demolished for the following reasons:
a)
no credible evidence of
the Aunt Debt was tendered, in that:
(i)
no witness, who had
direct knowledge of the Aunt Debt (i.e. the Father or Aunt), testified as to its
existence;
(ii)
the one person who did testify,
the Appellant, admitted on cross-examination that his examination for discovery
answers and trial testimony were different as to whether he had actually met
his Aunt, stated he had no direct knowledge of the existence of the Aunt Debt
and acknowledged that his priorities and interests at the time were not to
require or request further evidence of its existence;
(iii)
the Appellant gave no direct
evidence of anything approaching personal, direct knowledge of the Aunt Debt;
and
(iv)
on a documentary basis
there were no cancelled cheques, bank advices regarding wire transfers or automatic
fund transfer receipts (“AFTs”) between the Father to the Aunt submitted to
prove the loan existed in the first instance or was repaid in the second. At
most, it was indicated that the money was advanced from abroad, but even some 16
years after this purportedly occurred, and where documentary evidence for such
transfers would have occurred 16 years ago, in the form of receipts, cables and/or
AFT receipts, no evidence, documentary or otherwise, was tendered to prove the
receipt or repayment, nor was there direct vive voce evidence offered to
the Court as to why such documentary evidence of the Aunt was not available.
2.
Similarly, the
Minister’s assumptions concerning the non-existance of the Appellant Debt and
the Vimal Debt must also stand through the lack of any credible collateral
evidence of the existence of any debt in the form of advances, cheques or other
probative documentation. The self-serving testimony of the Appellant as to the
existence of the Appellant Debt was not credible. It was further discredited on
cross-examination by the Appellant’s view of his preferred entitlement to
monies upon the bankruptcy of his Mother’s restaurant business. In that regard,
he was paid the sum of $70,000.00 for undocumented, yet secured design and
marketing services and “sweat equity” purportedly invested in that business.
[17]
Even though the Respondent’s
assumptions were not demolished, the Respondent nonetheless led evidence of
admissions regarding the Father’s evidence, under oath, of using his relatives
as conduits to construct safe harbours for monies accruing from unlawful
activity. Had the Respondent’s original assumptions been demolished, this uncontroverted
admission may have rebutted any demolition of the assumption that the Aunt
Debt, Vimal Debt or Appellant Debt ever existed.
[18]
As a matter of fact, the
Father’s direct admission against interest under oath in certain United States
Court proceedings of the use of a subterfuge for transferring money offshore
(together with its declared purpose and goal), is preferred by this Court over
the vague, inconsistent, indirect and remote knowledge of the dutiful son, who
himself acknowledges he cannot be expected to presently remember such details
given his then current age, focus and interests as a teenager.
[19]
By way of legal
submission, the Appellant argued that in the present case a time limitation for
the application of subsection 160(1) of the Act should apply. The
presence of the Note, the mortgages and the assumption of debt provide prima
facie evidence of consideration which require any challenge by the Minister
to invalidate such instruments to be brought under other legislation or to employ
other legal constructs.
[20]
The case of Canada
v. Addison & Leyen Ltd., 2007 SCC 33, is definitive. The Supreme Court
overturned the decision of the Federal Court of Appeal for its reading in of a
limitation period which did not exist. The Supreme Court in its reasons said
the use of the words “at any time” by Parliament means the “length of delay” in
assessing a taxpayer is not open to challenge. Such an unequivocal statement
puts a conclusive end to the Appellant’s argument regarding a time limitation and
the need for the utilization of other legislation or legal construct by the
Minister to effect a reassessment under subsection 160(1) of the Act.
II. Conclusion
[21]
As stated, the Court finds
that the Minister’s assumptions that no debt existed between the Father and the
Appellant’s Aunt, Vimal Enterprises and the Appellant have not been dislodged
by the evidence offered by the Appellant before this Court.
[22]
As such, there was:
a)
no Aunt Debt, no Vimal
Debt nor any Appellant Debt to assume at or subsequent to the Transfers;
b)
no other consideration
was paid by the Appellant beyond the consideration expressed in the public
registry system’s affidavits and transfer documents as filed and the assumed bona
fide third party debt reflected in the public land titles system which has been
included by the Minister as valuable consideration in the reassessments; and
c)
since it was admitted by
the Respondent that the mortgages per se constitute valid mortgages, no
finding need be made of this fact. The registrations simply represent valid
registrations, but for the purposes of subsection 160(1) of the Act they
do not provide definitive
evidence of a debt existing or owing sufficient
to rebut the Minister’s assumptions, since the debt each purports to secure did
not exist at the time the security was granted based upon the insufficient or
non-existent evidence offered by the Appellant to dislodge the assumptions made
by the Minister.
[23]
Additionally, since no
evidence was led to challenge the assumptions of the Minister regarding the
fair market value of the properties, the reassessments are valid in that regard
as well.
[24]
For the reasons stated
above, the reassessments of the Minister stand, the appeals are dismissed and costs
are awarded to the Respondent.
Signed at Ottawa, Canada, this 27th day of September 2012.
“R.S. Bocock”
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