Date: 20011214
Docket: 2000-383-IT-G
BETWEEN:
CATHERINE LOUISE FALLIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
McArthur J.
[1]
These appeals concern reassessment numbers 15309, 15310 and
15311, dated January 6, 2000 against the Appellant pursuant to
section 160 of the Income Tax Act (the Act). The
reassessments added $37,561.41, $11,552.74 and $5,000 to the
Appellant's income. The amounts are not in dispute.
[2]
The parties acknowledge, quite rightly, that the issue boils down
to whether there was a transfer by Robert Fallis (the
Appellant's husband) of his interest in the Westport Avenue
home to the Appellant in the summer of 1991. The problem arose
following a reassessment in December 1995, when Robert Fallis was
advised that he owed $101,063 in taxes and interest thereon
dating back to 1992. The Minister of National Revenue (the
Minister) disallowed losses previously claimed by him. He
declared bankruptcy in 1997. The Minister vicariously assessed
the Appellant in 1998 for part of her husband's tax.
[3]
The object of section 160 is to prevent taxpayers from avoiding
tax liability by transferring assets to their spouse or to
another non-arm's length person. By making the transferee
liable, the Minister seeks to make a third person liable for the
debt of the taxpayer. The Appellant concedes that the liability
for tax arises from the Act and not from the date of the
assessment. Robert Fallis' liability for tax arose in 1992.
The Respondent's position is that a transfer of property from
Robert to the Appellant took place in 1994. The Appellant submits
that this transfer was completed in 1991.
[4]
Catherine and Robert Fallis have been married since 1989 and have
three children. Robert is a medical doctor carrying on a family
practice in St. Catharines, Ontario. The Appellant was a
school teacher prior to 1989 and has managed her husband's
business since then. In 1991 and 1992, she was earning $25,000
annually. The Appellant and Robert purchased jointly, a home on
Westport Avenue in St. Catherines in October 1989. The Westport
home was sold in 1994. To accommodate their growing family, the
Appellant used the proceeds, together with other blended funds,
to purchase a larger home on Bayview Boulevard in Jordan Station
in her name alone.
[5]
The Appellant's counsel concedes that the sum of $37,561 from
the sale of the Westport property used by the Appellant to
purchase Bayview had been Robert's equity prior to the summer
of 1991. He argues this was transferred by him to his wife in
1991 prior to Robert's liability for tax. Both the Appellant
and Robert testified as to the circumstances of the transfer. In
addition to his medical practice which he commenced in 1989,
Robert had several investments. He became part owner of a medical
building and invested approximately $140,000 through Smart
Investments Ltd. (Smart).[1] In deciding that his wife should own their home,
Robert stated he was concerned about his business investment
risks, including the financial risks with his medical
practice.
[6]
The crux of the Appellant's position is the following. The
Appellant and Robert decided after conversations between them in
the summer of 1991 that the equity in the Westport property from
then on belonged to the Appellant. It is this decision
communicated orally that the Appellant relies on as a conveyance
or transfer of Robert's 50% interest in the Westport real
estate. As a result, the net balance paid on the closing of the
Westport sale in 1994 was paid to the Appellant exclusively. This
position was not pleaded by the Appellant and apparently arose
only at trial. The Respondent's counsel did not raise a
procedural objection.
[7]
The Respondent's counsel submits that there was no conveyance
to the Appellant in 1991 and the gift to her of the Westport
proceeds was made in June 1994 when Robert signed a
direction authorizing the purchaser to pay the closing proceeds
to the Appellant. He notes that the agreement of purchase and
sale for the Bayview property in 1994 was made out in the joint
names of the Appellant and Robert. The deed was a grant to the
Appellant alone.
[8]
In support of his position, counsel for the Appellant cited from
Biderman v. Canada[2] and a quotation therein of President Thorson in
Estate of David Fasken v. M.N.R.:[3]
The word "transfer" is not a term of art and has not a
technical meaning. It is not necessary to a transfer of property
from a husband to his wife that it should be made in any
particular form or that it should be made directly. All that is
required is that the husband should so deal with the property as
to divest himself of it and vest it in his wife, that is to say,
pass the property from himself to her. The means by which he
accomplishes this result, whether direct or circuitous, may
properly be called a transfer.
and from McVey et al. v. The Queen:[4]
... He referred to Revenue Canada Interpretation Bulletin
IT-209R, at paragraph 3, for the definition of
"gifts":
A gift is generally defined as a voluntary transfer of
property without consideration. The essential requisites of a
gift are: intention and capacity of the donor to make the gift;
completed delivery to a donee; and acceptance of the gift by the
donee.
[9]
The Respondent's counsel was unprepared for the
Appellant's new position and submitted simply that Robert
could not transfer or convey his interest in the Westport real
estate by forming an intention to do so during the summer of
1991. I agree.
[10] Before
terminating the hearing, I referred the parties to Barnabe
Estate v. The Queen.[5] In Barnabe, the taxpayer met with his
accountant to discuss the transfer of his assets to a corporation
of which he was the sole shareholder. Ten days later, before
taking any further action, he died. Sexton J. with Strayer J.
concurring, concluded that there was a valid disposition of the
taxpayer's assets to comply with section 85 of the
Act. Robertson J. wrote a strong dissent. I have no
difficulty distinguishing the facts in Barnabe from the
present. In Barnabe, the Federal Court of Appeal relied on
the uncontradicted evidence of Barnabe's accountant "and
the supporting facts". The property transferred was farm
equipment and not real property. The Barnabe mode transfer was
accepted for the purposes of section 85. Mr. Barnabe was
contracting with himself.
[11] Ordinary
contract rules apply to a contract for the transfer of land. I do
not accept the evidence of the Appellant and Robert that there
was a transfer of Robert's interest in Westport to his wife
in 1991. It takes more than an intention or uncertain
conversation to transfer an interest in real estate. The law of
contract requires a clear statement of transfer, acceptance and
delivery. Robert and the Appellant may have decided at some time
during the period from 1991 to 1994 that the Appellant alone
would take title to their second home. There was no crisis or
need to transfer Westport in 1991. I believe this is an instance
where the memory of honest witnesses have been molded after the
passage of many years to suit their present circumstances.
[12] Even
accepting their evidence explicitly with respect to a 1991
transfer of an interest in real estate, I have no difficulty in
concluding at law, there was no disposition of property.
[13] The
disposition may have been in the minds of Robert and the
Appellant in 1991 but that is not sufficient to transfer real
property. The only way I can envision a disposition of his joint
tenancy is by a deed of conveyance or transfer. Robert did not
give up his possession in 1991, he continued to occupy the home
as he had before. He kept paying at least one-half of the
carrying costs. In arranging personal business matters between
husband and wife for tax purposes, form matters as provided for
in The Queen v. Friedberg[6] wherein Linden J.A. stated the following:
In tax law, form matters. A mere subjective intention, here as
elsewhere in the tax field, is not by itself sufficient to alter
the characterization of a transaction for tax purposes. If a
taxpayer arranges his affairs in certain formal ways, enormous
tax advantages can be obtained, even though the main reason for
these arrangements may be to save tax (see The Queen v. Irving
Oil 91 DTC 5106, per Mahoney, J.A.). If a taxpayer fails to
take the correct formal steps, however, tax may have to be paid.
If this were not so, Revenue Canada and the courts would be
engaged in endless exercises to determine the true intentions
behind certain transactions. Taxpayers and the Crown would seek
to restructure dealings after the fact so as to take advantage of
the tax law or to make taxpayers pay tax that they might
otherwise not have to pay. While evidence of intention may be
used by the Courts on occasion to clarify dealings, it is rarely
determinative. In sum, evidence of subjective intention cannot be
used to "correct" documents which clearly point in a
particular direction.
There was no completed delivery of Robert's joint interest
in the home. It was still registered in their joint names when
sold in 1994.
[14] The
Appellant is liable to pay the amounts of $37,561.41, $11,552.74
and $5,000 in accordance with section 160. The appeals are
dismissed with costs.
Signed at Ottawa, Canada, this 14th day of December, 2001.
"C.H. McArthur "
J.T.C.C.
COURT FILE
NO.:
2000-383(IT)G
STYLE OF
CAUSE:
Catherine Louise Fallis and
Her Majesty the Queen
PLACE OF
HEARING:
St. Catharines, Ontario
DATE OF
HEARING:
November 21, 2001
REASONS FOR JUDGMENT
BY:
The Honourable Judge C.H. McArthur
DATE OF
JUDGMENT:
December 14, 2001
APPEARANCES:
Counsel for the
Appellant:
H.A. Patrick Little
Counsel for the
Respondent:
Charles Camirand
COUNSEL OF RECORD:
For the
Appellant:
Name:
H.A. Patrick Little
Firm:
Heelis Williams & Little
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-383(IT)G
BETWEEN:
CATHERINE LOUISE FALLIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on November 21, 2001, at St.
Catharines, Ontario, by
the Honourable Judge C.H. McArthur
Appearances
Counsel for the
Appellant: H.A.
Patrick Little
Counsel for the Respondent: Charles
Camirand
JUDGMENT
The appeals from reassessments made under section 160 of the
Income Tax Act, notices of which are dated January 6, 2000
and bear numbers 15309, 15310 and 15311 are dismissed, with
costs.
Signed at Ottawa, Ontario, this 14th day of December,
2001.
J.T.C.C.
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