Gillis v. MNR, 91 DTC 1457, [1991] 2 CTC 2708 (TCC)

Christie, A.CJ.T.C.: —In computing his income for 1988 the appellant sought to deduct a business loss of $58,142 in respect of a trading account with Wood Gundy, stock and bond brokers. This account was in the name of his late wife Sigrid.

Paragraph 4 of the reply to the notice of appeal reads:

4. In assessing the 1988 income tax liability of the appellant the respondent relied upon, inter alia, the following findings and assumptions of fact:

(a) at all material times the appellant was employed as a securities salesman and

engaged on his own account in the business of securities transactions;

(b) the appellants spouse, Sigrid Gillls, received part-time employment income during the period 1961 to 1974;

(c) in or about 1975 the appellant and his spouse purchased a house in Truro, Nova Scotia, for $53,500, financed by a $40,000 mortgage. Shortly after the purchase, the appellant transferred his interest in the residence to his spouse, Sigrid Gillis, who became sole owner of the property;

(d) the appellant made all mortgage payments on the property;

(e) in 1985 the property, registered in the name of Sigrid Gillis, was sold for $135,000, of which $55,000 was transferred into a securities investment account at Wood Gundy Inc., registered in the name of Sigrid Gillis;

(f) between 1985 and 1988 inclusive numerous securities transactions directed by the appellant were recorded on this account;

(g) neither Sigrid Gillis nor the appellant reported income, gains or losses of any nature from this account in any of the taxation years 1985, 1986 and 1987;

(h) in August 1988 Sigrid Gillis died;

(i) the appellant claimed a business loss of $58,141.96 from this account for his 1988 taxation year;

At the outset counsel for the appellant made specific reference to each of paragraphs 4(a) to (i) in the reply to the notice of appeal. There was agreement regarding paragraphs 4(a), (b), (d), (h) and (i). With respect to paragraph 4(e) both parties agree that the property registered in the name of Sigrid Gillis was sold in 1985, that the net proceeds of the sale were $132,500 and that this amount was transferred to the Wood Gundy trading account in her name.

The evidence in chief of the appellant is that in 1975 he purchased a controlling interest in an investment dealership, Stevens & Baker. It was renamed Stevens, Baker & Gillis and functioned as a going concern until 1977 when it was sold to Wood Gundy. It then operated as a branch of Wood Gundy under the immediate management of the appellant. In addition he acted as a security salesman for Wood Gundy.

In April 1975 a home was purchased in Truro, Nova Scotia, for $53,500. Thirteen thousand five hundred dollars was paid in cash made up of the appellant's funds and money borrowed from the Royal Bank. The balance of $40,000 was secured by a mortgage. Initially the home was registered in the name of the appellant and his wife as joint tenants. In May 1977 the appellant conveyed his interest in the residence to his wife who thereupon became the sole registered owner. This was done on legal advice based on the apprehended possibility of difficulties regarding liability to creditors arising out of the appellant's business activities. There is no indication that this was done to defraud creditors. No difficulties with creditors existed at the time of the transfer or later. The indebtedness on the home was paid for exclusively by the appellant. Municipal taxes and other costs of maintaining it were also paid by him.

When the home was sold in August 1985 the appellant had the proceeds of the cheque which was payable to his wife credited to her existing trading account with Wood Gundy. This account was managed entirely by the appellant with his wife's express approval. The appellant said: “She signed a document giving me complete control of the account.” The precise nature of this document is not in evidence, but it was said in the course of argument by appellant's counsel to have been a power of attorney. The appellant said that he was the security salesman representing Wood Gundy in relation to the account in his wife's name which he regarded as his and that he was also acting on his own behalf in this regard. He added: "I was acting as a broker between Wood Gundy and my own account". He made all of the investment decisions.

In cross-examination the appellant did not deny the findings and assumptions in paragraph 4(g) that neither he nor his wife reported income, gains or losses regarding the trading account in her name for 1985, 1986 or 1987. Also he agreed that when the net proceeds on the sale of the home were credited to his wife's trading account he had a similar account with Wood Gundy.

After the hearing counsel for the respondent, with the consent of counsel for the appellant, sent the court copies of the instrument dated April 10, 1975, transferring the Truro residence to the appellant and his wife as joint tenants; the instrument dated May 5, 1977, transferring the appellant's interest in that property to his wife; the instrument dated August 28, 1985, transferring the property from Sigrid Gillis to the purchaser. The indenture of May 5, 1977, is an unqualified conveyance of the appellant's interest in the real estate to his wife.

It is the basic position of the appellant that the losses on the disposition of securities that are identified with the trading account in the name of his wife were his business losses because the funds in the account were his property and he conducted as his business the trading that went on regarding that account. In argument the appellant's claimed entitlement to deduction of losses in the amount of $58,142 was reduced to 87.38 per cent of that amount or $50,804. How this is arrived at need not be related in these reasons because of the conclusion the appellant is not entitled to deduct the $58,142 or any part of it.

The appellant alleges, among other things, that there was a resulting trust in his favour in respect of 87.38 per cent of the proceeds of the disposition of the residence. At common law a presumption of an intention on the part of the appellant to make a gift of his interest in the Truro home to his wife would arise in the light of what transpired with respect to that property in relation to them. In Law of Trusts in Canada, Waters, 2nd ed. (1984) this is said at page 313:

If A is able to establish that he purchased property and had it conveyed into B's name, or that he voluntarily transferred property to B, there is commonly said then to be a presumption of a resulting trust in A’s favour. But that presumption, which puts the burden of proof on B to prove A intended a gift, will not arise where B is a child or wife of A. In such cases there is a presumption that A intended to make a gift, and it is for A to prove that he had no such intention. The word "advancement" is now rather archaic, but it means that the person who stands in the position of a husband or father is assumed to be making over a portion of his assets to one who by marriage or parent-child relationship is in some degree financially dependent upon him and might reasonably expect to share in the assets of the transferor on his death. In that sense the transfer of property is an "advance" of what might be expected on the transferor's death. As far as children are concerned, an “advancement also implies a donation to assist the child in establishing himself in life.

And at page 324:

Without that presumption (of advancement) between husband and wife there is nothing to prevent the operation of the fundamental rule of equity that when A gratuitously transfers property to B, or purchases property in B's name, B is presumed to have been intended to hold a (resulting) trust for A. The burden of proof is upon B to show a gift was intended.

But the appellant invokes section 21 of the Matrimonial Property Act, R.S.N.S. 1989, c. 275. It provides:

21.(1) The rule of law applying a presumption of advancement in questions of the ownership of property as between husband and wife is abolished and in place thereof the rule of law applying a presumption of a resulting trust shall be applied in the same manner as if they were not married, except that

(a) the fact that property is placed or taken in the name of spouses as joint tenants is prima facie proof that each spouse is intended to have on a severance of the joint tenancy a one-half beneficial interest in the property; and

(b) money on deposit in a chartered bank, savings office, loan company, credit union, trust company or other similar institution in the name of both spouses shall be prima facie proof that the money is on deposit in the name of the spouses as joint tenants for the purposes of clause (a).

(2) Subsection (1) applies notwithstanding that the event giving rise to the presumption occurred before the first day of October, 1980.

I shall assume that section 21 applies in the context of this appeal. The effect of the opening words of subsection 21(1) is simply to substitute the rebuttable presumption of advancement by way of gift when a husband gratuitously conveys property to his wife for the rebuttable presumption of the creation of a resulting trust in respect of such a transfer as if the transferor or transferee were not married at the time of the transfer subject to this. When the property was acquired by the appellant and his wife in 1975 as joint tenants, the effect of paragraph 21(1)(a) was to establish prima facie that both of them intended that when the joint tenancy was severed each would have a 50 per cent beneficial interest therein. There is nothing in the evidence to rebut that prima facie proof. It follows that when, on May 5, 1977, the appellant conveyed his interest to his wife she had a 50 per cent beneficial interest in the property and the only question is whether a resulting trust was created in respect of the appellant's 50 per cent beneficial interest or regarding payments made thereafter by him to reduce the debt secured by the mortgage on the property. The presumption of a resulting trust is rebutted by the evidence. In this regard I refer in particular to the transfer from the appellant to his wife in May 1977 having been motivated by a desire to place the property beyond the legal reach of potential creditors of the appellant by divesting himself of any interest in it. Also if the appellant was entitled to all or nearly all of the proceeds of the disposition of the property, why were the simple steps not taken to have them deposited to his own trading account?

If there had been a resulting trust, that would not conclude the matter in the appellant's favour because this question would then arise: Was the business said to have been carried on in respect of the trust property that of the trust or of the appellant? There being no trust this need not be pursued, but in passing reference is made to Part I, Division B, subdivision k of the Income Tax Act which deals with trusts and their beneficiaries and what was said in Fletcher v. M.N.R., [1987] 2 C.T.C. 2341; 87 D.T.C. 624 (T.C.C.) at 2346-48 (D.T.C. 628-29).

Finally a submission is made on behalf of the appellant based on agency. Its essence is reflected in this statement made by his counsel in argument: "The relationship was thus in the nature of a principal/agent relationship and the wife held the property as agent for the taxpayer. It is submitted that profit or losses earned or incurred by an agent from property of a principal which is held in the name of the agent, and thus in trust, is for the account of the principal and not the agent.”

Again there is no evidence upon which it can be concluded that Sigrid Gillis expressly or impliedly consented to act as agent for the appellant in relation to the Truro residence or the proceeds from its sale. Indeed, if the relationship of principal and agent was created between them, it strikes me that the evidence points to the appellants wife being the principal and he the agent. One point that perhaps deserves emphasis in this respect is that in Black's Law Dictionary, 5th ed. (1979) at page 1055 a power of attorney is said to be: "An instrument authorizing another to act as one's agent or attorney."

The appeal is dismissed.

Appeal dismissed.