Citation: 2012TCC379
Date: 20121029
Docket: 2007-4643(IT)G
BETWEEN:
JUDITH MACLEOD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller J.
[1]
This appeal is from an
assessment by the Minister of National Revenue (the “Minister”) made under
subsection 160(1) of the Income Tax Act (the “Act”). The
Appellant was assessed the amount of $58,794.77 in respect of money her spouse
deposited into her bank account between January 2, 1998 and November 5, 2002
while he was a tax debtor.
[2]
It is the Appellant’s
position that the money was never transferred to her and, if it was, then she
gave her spouse consideration for the amount transferred.
Facts
[3]
The parties submitted a
Partial Joint Statement of Facts which reads:
1.
By Notice of Assessment dated August 11, 2004,
the Minister of National Revenue (the “Minister”) assessed the Appellant in the
amount of $58,794.77 in respect of transfers of property to the Appellant from
Wilber MacLeod pursuant to section 160 of the Act.
2.
The Appellant filed a Notice of Objection on
September 10, 2004.
3.
By Notice of Confirmation dated September 21,
2007, the Minister confirmed the Notice of Assessment.
4.
At all material times, the Appellant was the
spouse of Wilber MacLeod.
5.
At all material times the Appellant and Wilber
MacLeod were deemed to be dealing with each other not at non-arm’s length
pursuant to paragraphs 251(2)(a) and (1)(a).
6.
Prior to January 13, 1994, the Appellant and
Wilber MacLeod jointly owned the martial home at 5 Station Road, Rothsay (sic),
New Brunswick (the “Property”).
7.
On January 13, 1994, Wilber MacLeod conveyed his
interest in the Property to the Appellant for no consideration.
8.
On January 13, 1994, the Appellant mortgaged the
Property to the Bank of Montreal (“BMO”) in exchange for a loan (the “Mortgage
Loan”).
9.
On January 13, 1994, Wilber MacLeod guaranteed
the Mortgage Loan.
10.
At all material times, the Appellant held full
legal title to the Property, subject only to the outstanding balance of the Mortgage
Loan.
11.
Between January 2, 1998, and November 5, 2002,
Wilber MacLeod was the source of a total of $58,794.77 (the “Payments”) that
was deposited into a bank account at the bank (sic) of Montreal held
solely in the name of the Appellant.
12.
The BMO withdrew the Payments from the
Appellant’s bank account to service the Mortgage Loan.
13.
At all material times, the Property was occupied
by the Appellant and Wilber MacLeod as their family residence.
14.
The Appellant has been and remains personally
liable for the mortgage liability on the Property.
15.
At no time during the appeal period did BMO call
upon Wilber MacLeod to honour his personal guarantee on the Mortgage Loan.
16. The aggregate of all amounts that Wilber MacLeod
was liable to pay under the Act in or in respect of the 1995, 1996, 1997, 1998,
2000 and 2002 taxation years was not less than $116,816.81 as of August 11,
2004.
[4]
The Appellant was the
only witness at the hearing of this appeal and a summary of her evidence
follows.
[5]
The Appellant graduated
from Dalhousie University in 1964 and she taught nursing at the Victoria Hospital in Halifax, Nova Scotia until 1976.
[6]
She and her spouse,
Wilber (referred to as Wilbur in some of the documents submitted to the court)
MacLeod, moved to Rothesay, New Brunswick in 1976; and, in 1979, they purchased
a home, as joint tenants, at 5 Station Road in Rothesay (the “Home”). The cost
of the Home was $63,000; the Appellant provided $15,000 for the down payment;
and, she and her spouse gave the CIBC a mortgage against the Home in exchange
for a loan of $48,000.
[7]
In 1990, 1992 and 1993,
the Minister registered judgments against Wilber MacLeod for his outstanding
income tax liability. By January 1994, Wilber MacLeod was also liable for
amounts of GST which had not been remitted by him from his law practice. On
January 13, 1994, his total income tax and GST liability was $47,115.31.
[8]
In early 1994, the
Appellant made enquiries with various financial institutions in an attempt to
negotiate a new mortgage on the Home. One of the reasons she wanted to
renegotiate the mortgage was to get funds to pay her spouse’s tax debt. A
branch of the Bank of Montreal (the “BMO”) agreed to give a loan for $115,000
in exchange for a mortgage on the Home.
[9]
According to the
Appellant, the bank manager suggested that the Home should be held in the
Appellant’s name only. On January 13, 1994, Wilber MacLeod transferred his
interest in the Home to the Appellant. She gave the BMO a mortgage on the Home
for the loan of $115,000 and Wilber MacLeod gave a personal guarantee for the
mortgage.
[10]
On January 14, 1994,
the proceeds of the loan were used, in part, to pay off the outstanding
mortgage to the CIBC in the amount of $51,950.90 and to pay Wilber MacLeod’s
tax debt of $47,115.31.
[11]
Wilber MacLeod was the
source of all payments which were made on the mortgage. Between January 2, 1998
and November 5, 2002, $58,794.77 (the “Funds”) was deposited into the
Appellant’s bank account so that she could pay the mortgage.
[12]
I gathered from the
Appellant’s evidence that she earned little income during the period 1998 to
2002. In answer to a question from counsel for the Respondent, she stated that
her husband earned the money and she spent it.
Law
[13]
As stated earlier, the
Appellant was assessed the amount of $58,794.77 pursuant to subsection 160(1)
of the Act. That provision reads as follows:
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) the person's spouse or common-law partner or a person who
has since become the person's spouse or common- law partner,
(b) a person who was under 18 years of age, or
(c) a person with whom the person was not dealing at arm's
length,
the
following rules apply:
(d) the transferee and transferor are jointly and severally
liable to pay a part of the transferor's tax under this Part for each taxation
year equal to the amount by which the tax for the year is greater than it would
have been if it were not for the operation of sections 74.1 to 75.1 of this Act
and section 74 of the Income Tax Act, chapter 148 of the Revised
Statutes of Canada, 1952, in respect of any income from, or gain from the
disposition of, the property so transferred or property substituted therefor,
and
(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.
[14]
Four requirements must
be satisfied for subsection 160(1) of the Act to apply: Williams v.
R., [2000] 4 C.T.C. 2115 (TCC).
(a) There must be a transfer of property;
(b) The transferor and transferee must not
have been dealing at arm’s length;
(c) There must be no or inadequate
consideration flowing from the transferee to the transferor;
(d) The transferor must have
been liable for tax when the property was transferred.
[15]
In this appeal only the
requirements at (a) and (c) were at issue.
Analysis
(a) Transfer
[16]
In support of the
Appellant’s position that the Funds were never transferred to her, counsel for
the Appellant reviewed the decisions in Wannan v R., 2003 D.T.C. 76
(TCC), Pickard v. R., 2010 TCC 535, Woodland v. R., 2009 TCC 434
and R. v. Livingston, 2008 FCA 89. He then submitted that there was no
transfer of the Funds to the Appellant because Wilber MacLeod had a legal
obligation under his guarantee to the BMO. In the alternative, he argued that
if there was a transfer of the Funds to the Appellant, she was merely acting as
a de facto agent or a conduit for either or both Wilber MacLeod
and the BMO. In conclusion, he argued that the Appellant never acquired
beneficial interest in the transferred Funds as those Funds merely moved
through her account for the benefit of the BMO.
[17]
The Appellant cannot
succeed on her arguments with respect to the transfer of the Funds. When Wilber
MacLeod was making deposits into the Appellant’s bank account, he was not
satisfying his guarantee of the mortgage as the bank had not called upon him to
honour his guarantee. There was no evidence that the bank has ever called upon
him to honour that guarantee.
[18]
The Appellant was not
acting as an agent for her spouse or the BMO. Wilber MacLeod was not liable to
make payments to the BMO on the mortgage. The Appellant was the only mortgagor
named on the mortgage.
[19]
The deposit of the
Funds into the Appellant’s bank account constituted a transfer of those Funds: R.
v. Livingstone, 2008 FCA 89. She had both legal and beneficial
ownership of the Funds as she had complete control over them. It was her
evidence that she, on occasion, used some of the Funds to pay other family
expenses.
[20]
The Appellant
definitely benefited from the deposit of Funds in her bank account. Each time
the mortgage was paid her equity in the Home increased.
(b) Consideration
[21]
Counsel for the
Appellant also argued that the Appellant had provided consideration for the
transfer of the mortgage payments. The consideration took three forms. (1) It
was the amount of $47,115.31 which the Appellant had paid on January 13, 1994
on her spouse’s tax debt. (2) The consideration also consisted of the services
which the Appellant provided to Wilber MacLeod both in his law practice and in
the maintenance of their home: R. v. Ducharme, 2005 FCA 137. (3) Counsel
also argued that the Funds were rent payments made by Wilber MacLeod to the
Appellant.
[22]
In answer to the
Appellant’s submissions, it was the Respondent’s position that the Appellant
had been compensated prior to 1998 for the amount she gave her spouse to pay
his tax debt. In addition, there was no evidence to value any services provided
by the Appellant to her spouse and the Funds were not given to the Appellant in
exchange for rent.
[23]
The evidence has
supported the Respondent’s position.
[24]
In the Partial Joint
Statement of Facts, the parties agreed that Wilber MacLeod transferred his
interest in the Home to the Appellant for no consideration. The evidence did
not support that statement.
[25]
When he transferred his
interest on January 13, 1994, Wilber MacLeod knew that the Appellant would pay
off his tax debt. He knew this because the mortgage from the BMO was
conditional on that requirement. The Appellant gave consideration for the
transfer of the Home; it was the promise to pay her spouse’s tax debt.
[26]
There was no evidence
of the fair market value of the Home on January 13, 1994. However, I assume that
it was at least $115,000 as the bank was willing to lend the Appellant that
amount in exchange for a mortgage. The value of Wilber MacLeod’s equity in the
Home on January 13, 1994 was at minimum $31,524.55. (To calculate that value, I
have subtracted the CIBC mortgage of $51,950.90 from $115,000 and divided the
result by 2.)
[27]
After the Appellant
paid her spouse’s tax debt, he was in debt to her for $15,590.76 ($47,115.31 -
$31,524.55).
[28]
For clarity, I repeat
that the Appellant was assessed the amount of $58,794.77 in respect of Funds
her spouse deposited into her bank account between January 2, 1998 and November
5, 2002.
[29]
The first payment on
the mortgage was due on March 1, 1994. I have concluded that from March 1, 1994
to December 31, 1997, Wilber MacLeod more than repaid his debt to the
Appellant. He made 46 monthly deposits to the Appellant’s bank account and he
deposited an amount in excess of $15,590.76 into her bank account so that she
could pay her commitment under the mortgage. My conclusion is based on the
following.
[30]
Wilber MacLeod made
deposits to the Appellant’s bank account to cover all mortgage payments. He
began to make monthly deposits of $971.96 into the Appellant’s bank account on
March 1, 1994. I note that the term of the mortgage was only 6 months and I do
not know what the instalment payments were when the mortgage was renewed.
However, the mortgage renewal agreements for the 6 month periods from September
1996 and March 1997 were in evidence and the instalment payments for those
agreements were $1,105.75 and $1,084.47. To cover the mortgage payments for
these eighteen months, Wilber MacLeod deposited $18,973.08 into the Appellant’s
bank account. In addition to this amount, he deposited an unknown amount of
money into the Appellant’s bank account for 28 extra months.
[31]
There was no evidence
that the mortgage payments between September 1994 and August 1996 were less
than $971.96. There was no evidence that the mortgage was ever in default.
[32]
It is my view that the
Appellant had been fully reimbursed prior to January 1998 for the amount she
paid on her spouse’s tax debt.
[33]
Counsel for the
Appellant relied on the Federal Court of Appeal decision in Ducharme for
support that the Appellant gave valuable consideration in exchange for the
Funds. According to him, this consideration took the form of maintaining the
Home by cooking, cleaning, doing laundry and providing primary care to the
children of the marriage.
[34]
I disagree with his
interpretation of the decision in Ducharme. It was not based on valuing
domestic services and Ducharme has been distinguished so that it is
restricted to its own facts: See Yates v. R., 2009 FCA 50 at paragraphs
21 to 23.
[35]
Counsel for the
Appellant also submitted that the Appellant provided services to her spouse in
his law practice for no compensation. However, there was no evidence given with
respect to the length or value of these services.
[36]
Counsel’s last argument
with respect to consideration was that the mortgage payments were rent paid to
the Appellant by her spouse. This argument was not supported by the evidence.
On cross examination, the Appellant agreed that the Funds deposited into her
bank account were not rent payments from her spouse.
[37]
In conclusion, there
was a transfer of the Funds from Wilber MacLeod to the Appellant when they were
deposited into her bank account and she did not give any consideration for the
Funds. All of the requirements of subsection 160(1) have been met and the
appeal is dismissed with costs to the Respondent.
Signed at Ottawa, Canada, this 29th
day of October 2012.
“V.A. Miller”
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