Leigh v. The Queen, docket 96-2818-IT-G

Date: 19981030

Docket: 96-2818-IT-G

BETWEEN:

FREDERIC W.R. LEIGH,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Margeson, J.T.C.C.

[1] This appeal is from an assessment of the Minister, notice of which was dated June 2, 1995 and bears number 13502. Under the assessment, the Appellant was assessed for tax liability under subsection 160(1) of the Income Tax Act (Act) in the amount of $52,662.30 in respect of the transfer of funds from F.W.R Leigh Management Corporation to the Appellant on or about May 7, 1988 without consideration. This amount included penalties and interest.

Facts

[2] Mr. Frederic W.R. Leigh was a financier. He confirmed the above assessment. He was an 80 per cent shareholder of F.W.R. Leigh Management Corporation (Company) at all relevant times. The business of this company was to assist companies listed on stock exchanges. He was also the Chief Executive Officer and Manager. Sometime after September 2, 1987, matrimonial difficulties developed between himself and his wife which lead to various court actions resulting in the freezing of the assets of the Company. There was also a severe downturn in the market which ultimately collapsed and the business of the Appellant suffered immensely.

[3] The spouse of the Appellant commenced an action in the Supreme Court of British Columbia against the Appellant and in the Statement of Claim she alleged that certain properties that were owned by the Company were family assets within the meaning of section 45 of the Family Relations Act, R.S.B.C. 1979, chap. 121, (Family Relations Act) and amendments thereto. The spouse further alleged that all assets registered in the name of the company were family assets.

[4] In the Statement of Defence and counterclaim filed by the Appellant, he denied the above-relevant allegations. The spouse also filed a statement of property claiming one-half interest in the business interests of the Appellant including those of the Company. The Appellant filed a Statement of Property and claimed the full 80 per cent interest in the Company.

[5] Exhibit A-8 contained the evaluation of the company's assets prepared in the Appellant's office and on his instructions.

[6] Exhibit A-9 was an order of the Supreme Court of British Columbia dated October 9, 1997 pursuant to section 44 of the Family Relations Act. This was a consent order.

[7] Exhibits A-10 and A-11 were orders of the Supreme Court of British Columbia, which had the effect of restricting the right of the Appellant in dealing with the assets of the Company. The exhibit also contained the Minutes of Settlement signed by the Appellant and his spouse. These said Minutes of Settlement were dated March 11, 1988 and paragraph 8 provided for the payment by the Appellant to his spouse in the amount of $63,000 in full, final and complete settlement of the plaintiff's claims pursuant to Part III of the Family Relations Act, being that section dealing with business assets which were to be considered as family assets under the said Act. Further, the Minutes of Settlement provided that the Company would execute any and all necessary resolutions and/or authorisations with respect to the sale of the property in issue in this case to enable the sum of $63,000 to be paid to the solicitors of the spouse.

[8] The Appellant said that the Company lasted for about two years after September 2, 1987 until there were no more assets in the Company. Then it was discontinued and he started to work for Allwest Insurance Company. He tried to operate the business but it was not possible for him to pay the support and to maintain the operation of the Company. He confirmed that the issuing of the orders contained in Exhibit A-10 hindered his operation of the Company as the order effectively caused the assets of the Company to be frozen and prevented him from being able to do anything with those assets. He earlier indicated that the stock market crash decimated the Company and as of January 31, 1988 he estimated that the liquidation value of his shares in the Company was at a low of $58,000 and a high of $69,000 which was about 10 per cent of the original estimate as contained in Exhibit A-7.

[9] He was asked why his wife was to receive $63,000 under the settlement outlined in Exhibit A-11, whereas the value of the corporation was listed at $58,000 to $69,000 and he was unable to answer this question.

[10] He indicated that he had to make payments on behalf of the Company after March of 1988 to the banks and to the Company's accountants to the extent of about $20,000.

[11] In cross-examination, he would not agree that his spouse was not taking legal action against the Company in spite of the fact that Exhibit A-10 showed that the only parties to the action were himself and his spouse. He said that the company was struck from the corporate registry in 1991. Up to April 1, 1987 he had three shares in the Company. After 1987, a person by the name of Kathryn Marino received three shares without consideration and the Appellant received the remainder of the shares. The only consideration that Kathryn Marino gave for the shares was time spent with the Company. No shares were put into his wife's name and at the time of the separation in 1987 there was no agreement between himself and his spouse with respect to the shares.

[12] He agreed that there was no court order confirming the Minutes of Settlement dated March 11, 1998. He was unable to say whether the Court had made any declaration as to what constituted a family asset under the appropriate legislation. In any event, the matter was settled as between the parties.

[13] He confirmed that he had claimed in Exhibit A-5 that the assets in question were business assets and were not family assets. However, the matter was settled when money ran out.

[14] He confirmed that the property in issue was sold in order to obtain cash and he indicated that at the time he entered into the settlement with his spouse he did not think that he had enough money to pay the settlement without using the company's assets.

[15] He confirmed that the paragraphs in the Minutes of Settlement providing for the sale of the Company's property and the distribution of the assets to his spouse were included in the agreement so that he would be able to obtain the funds to complete the settlement.

[16] He was asked why he had not given his spouse 40 per cent of the shares rather than proceeding to have the Company's properties sold and the value thereof turned over to the wife's solicitors. His answer was that all of the money was to go to his spouse's lawyer because if the cash was not available the claim against his wife's interest in her home would not be lifted. The only source of money that he had was the assets of the Company.

[17] He agreed that the wife paid no consideration to the company for the proceeds of the sale of the Company's property. Further, the Company received no advice to transfer the value of the assets to his wife. The fees paid on behalf of his wife to her lawyers were as a result of the divorce action. After the two properties were sold the Company had no more assets. If the assets had not been sold and the funds transferred to his spouse the Company would have had money available to pay taxes assessed against the Company for previous years.

[18] In redirect, he indicated that he had received advice that his spouse would be entitled to part of the Company as a family asset. He confirmed that the valuation set forth in A-7 did not accurately reflect the real values at that time due to the restriction placed upon his dealing with the shares. He could not receive anything similar to the evaluation set out in A-8 for the shares. He had stock that he could not trade and the market declined. He had escrow stock but it was worthless. The assets referred to in paragraph 8, Exhibit A-11, were left in the corporation at that time. This is what he meant when he said that "this clause was inserted into the agreement to enable funds to be obtained to pay the debt contained in the settlement Agreement".

Argument on behalf of the Appellant

[19] In argument, counsel for the Appellant said that there were four different aspects to the present case. He set them forth as follows:

1. The issue of ownership of the Company and the effect of the British Columbia Family Relations Act upon that ownership.

2. Consideration of subsection 160(4) of the Income Tax Act.

3. The proper calculation of the amount of interest.

4. the amount of consideration;

[20] It was the position of counsel that the Appellant was originally the owner of 79 per cent of the shares of the Corporation. Under Part III of the Family Relations Act of the Province of British Columbia (supra), dealing with matrimonial property, section 43 provides that:

... each spouse is entitled to an interest in each family asset ... when

(a) a separation agreement;

(b) a declaratory judgment under section 44;

(c) an order for dissolution of marriage or judicial separation; or

(d) an order declaring the marriage null and void ... is first made.

This section provides for an undivided one-half interest in the family assets as a tenant in common. This vests an interest in the asset before an order is made. In the case at bar, a declaratory judgment was made on October 9, 1987. The effect of this order was that from and after that date, each spouse had an undivided one-half interest in the family asset not registered in their name. In accordance with Blackett v. Blackett, 40 B.C.L.R. (2d) 99, at page 103, the wife receives a one-half interest in the shares and not in the value of the asset. This occurred at the date of the triggering event, which in this case was the order that was made on the 9th day of October 1987 (Exhibit A-9). From and after that date the spouse owned one-half of the shares. It was a vested interest.

[21] Counsel referred to the Family Law Sourcebook for British Columbia, a project of the Vancouver Family Law Section, British Columbia Branch, Canadian Bar Association, setting out the Case law current to November 1, 1997 and Legislation current to December 1, 1997 in support of his position that each spouse is entitled to an undivided one-half interest as a tenant in common in each family asset upon the occurrence of the triggering event.

[22] The case of Biedler v. Biedler and Henfrey and Company Limited, 33 R.F.L. (2d) (366) at page 374 was referred to in support of this position and that this interest is a property interest which is valid as against a trustee in bankruptcy. Further, the case of Derrickson v. Derrickson et al, 1 B.C.L.R. (2d) 273 at 281 is in support of his position that after the triggering event occurs, the result is not just that the Court can order a distribution of the assets, but that from and after the triggering event the spouse had a vested interest in 50 per cent of the family assets that were not registered in her name.

[23] Counsel pointed that section 43 of the Family Relations Act (supra) only refers to the equality of entitlement to family assets. However, business assets can be family assets under the provisions of paragraph 45(3)(e) of the Family Relations Act. The only business assets that are excluded from family assets are set out in section 46 of the Family Relations Act, "where property is owned by one spouse to the exclusion of the other and is used primarily for business purposes and where the spouse who does not own the property made no direct or indirect contribution to the acquisition of the property by the other spouse or to the operation of the business, the property is not a family asset”. Paragraph 45(3)(e) of the Family Relations Act includes an indirect contribution to savings such as effective management of household or childbearing responsibilities by the spouse who holds no interest in the property.

[24] Counsel's position was that Exhibit A-4, paragraph 20(d) provided sufficient evidence that section 45 of the British Columbia Statute has been complied with and that the shares were a family asset, not an excluded business asset.

[25] The allegations with respect to the spouse's work in the marriage of looking after the home and children were not denied in the defence.

[26] As in Fischer and Fischer, [1984] B.C.D. Civ. 1680-04, the parties were entitled to an equal division of the assets that existed on the date that the agreement was signed. The wife was entitled to one-half of the husband's business assets on the date of the separation based on the agreement and also on her indirect contribution to their acquisition by her effective management of the home and the raising of the children. See also Wagner v. Wagner, 36 B.C.L.R. at page 68. As of the date of the separation agreement, the parties were the controlling shareholders of the company (to the extent of 80 per cent). They agreed that the amount of $63,000 was to go to the wife and they agreed that the company would sell the properties to obtain these funds. The agreement further provided that the wife would relinquish all her right, title, and interest in the company and put an end to the restraints against the operation of the company so that the properties could be sold. There were no other assets available at that time.

[27] As a result of the execution of the separation agreement, the company acquired the assets of the company from Mrs. Leigh. What happened in the present case was the reverse of that which happened in The Queen v. Kieboom, 92 DTC 6382. In the case at bar, Mrs. Leigh disposed of her interest in the company and the company paid her for it.

[28] In the case at bar, as in Ormiston v. The Queen, 97 DTC 1396, there was a disposition because the wife in the case at bar, as the taxpayer in Ormiston (supra), had an interest in the shares even though she was not a registered shareholder. Therefore it is possible to dispose of an interest in a corporation without disposing of actual shares.

[29] The agreement was between the two shareholders in the company. The company transferred to one shareholder, the property. In the case at bar, the transfer of the property was taxable to all the shareholders because they decided what to do with the property. See M.N.R. v. Bronfman, 65 DTC 5235 at p. 5239.

[30] Consequently, in the case at bar, 40 per cent of the tax was taxable in the hands of the wife and 40 per cent was taxable in the hands of the husband.

[31] On the question of valuation, the Appellant submitted evidence in Exhibit A-11 that the value of the shares was $58,000 to $69,000. Therefore, the maximum amount that could be assessed against the Appellant was $20,912 calculated as follows:

Amount assessed under section 160 $52,662.30

Estimated value of the Appellant's shares

according to evidence between $58,000 to $69,000

say    $63,500.00

One-half thereof to Mrs. Leigh $31,750.00

Amount paid by the Company in excess

of Mrs. Leigh's one-half interest $20,912.00

Technical argument

[32] Counsel's position was that a technical argument could be made under the provisions of subparagraph 160(4)(a)(ii) of the Act that at the time of the transfer between spouses, the value thereof was nil and therefore the liability would be nil.

[33] In the present case it is the corporation who is the transferor and the transferee was the wife, but the transfer was not to the wife. It was a contemporaneous transfer to the wife by the company and therefore there was a value of nil with respect to the transfer. This is not an unrealistic interpretation in light of the fact that section 160 purports to attract tax to someone not otherwise taxable therefore.

[34] Counsel referred to the case of Corporation Notre-Dame de Bon-Secours v. Communauté Urbaine de Québec et al., 95 DTC 5017 at page 5023 in support of his argument that subsection 160(4) is ambiguous in the present context and consequently since there is a reasonable doubt as to the result by the ordinary rules of interpretation, recourse should be to the residual presumption in favour of the taxpayer. That should apply in this case.

Extent of liability of Appellant

[35] Counsel argued that the Minister may have assessed the Appellant for liability beyond his authority in section 160 of the Act. Here he relied upon the reasoning of Dussault, J.T.C.C. in Algoa Trust v. The Queen, 98 DTC 1614. In that case, Judge Dussault decided that the rule stated in section 160 of the Act does not have the effect of creating a tax debt. It is only a way of collecting a debt. Consequently, the taxpayer in the case at bar could not be assessed for interest after the date of transfer. Consequently, there could be no tax liability by way of interest for the year 1989 but only for the taxation years 1987 and 1988, the transfer having taken place on May 17, 1988.

[36] As Judge Dussault discussed there is no new tax debt and an assessment under section 160 already incorporates the interest which the transferor owed in addition to the tax. The assessment may also incorporate penalties and interest thereon.

Fair market value

[37] On this issue, counsel referred to Cantrav West Services Ltd. v. Edwards et al, 32 C.P.R. (3d) 454 at pages 460-62, in arguing that if there was an appropriation by the Appellant of funds of the company then he owed a duty to the company and consequently the transfer that was made was not without consideration.

[38] Counsel conceded that this argument was not accepted in Curlett v. M.N.R., 61 DTC 1210, but it was his position that that case involved a shareholder's appropriation of funds of the company and was a question of income whereas in the case at bar, it is a case of collection.

[39] It might be pointed out that this argument was not put forward forcefully.

Argument of the Respondent

[40] Counsel for the Respondent conceded that the arguments of counsel for the Appellant might have been ingenious but the assessment in issue was against the individual not the company. The company was not a party to the lawsuit. She referred to Kondrat v. The Queen, 96 DTC 1566, in support of her position that the Appellant in the case at bar is liable for the tax assessed against him. That was also a case where the taxpayer, the sole shareholder of the corporation, paid to his spouse an amount of money to settle an action taken by her against him under the matrimonial property act of Alberta. It was argued in that case that this was not a benefit conferred on the Appellant that had to be included in his income pursuant to paragraph 15(1)(c) of the Act. In that case, the court held that the rights sought by the spouse in her action were against a taxpayer and were rights born of the marriage. The corporation was not a party to the action and had no obligation to the plaintiff's spouse and any payment by the corporation to the plaintiff was a payment made for the benefit of the spouse who was a shareholder (husband). It was held to be a benefit to the taxpayer-husband.

[41] There was no evidence in the case at bar to indicate that there was any benefit to the company as a result of the transaction. Indeed, the action was fatal to the company. The benefit was conferred on the Appellant's husband and it prevented the company from paying its assessment.

[42] In the Appellant's defence to the action instituted by his spouse, he claimed that the asset in issue was not a family asset. Just because he reached a settlement on that issue that does not make it a family asset.

[43] Further, in Exhibit A-5 at paragraph 5, he denied the allegations of his spouse that this was a family asset and his position was that it was a business asset in which his spouse had no interest. It just remained a dispute until financial pressure forced him to settlement. There was insufficient evidence to suggest that it was a family use asset.

[44] Counsel referred to the case of Nevidon v. R., [1996] 2 C.T.C. 2509 at p. 2512, where Bowman J. of this court was considering the provisions of the Ontario Family Law Reform Act on the breakdown of the marriage and as to whether or not the wife became a 50 per cent beneficial owner of a certain property so that 50 per cent of the capital gain belonged to her for the purposes of the Income Tax Act. Judge Bowman was not satisfied that the Cambridge property was a family asset, but in any event, even if it were he did not think that the effect of the relevant section was to alter the beneficial ownership of the asset as between the spouses in such a way that the effects of the Income Tax Act were altered. Judge Bowman was satisfied that nothing in the relevant section made the spouse the beneficial owner of one-half of the property owned by the other spouse.

[45] Counsel further pointed out that the company was not a party to the separation agreement between the spouses. There was nothing to indicate that the Appellant had the right to do what he did, nothing compelled the company to ratify the agreement nor indeed gave any authority to the husband to act in the manner that he did. He could have transferred 40 per cent of his shares to his spouse but he did not do so because the spouse's lawyer required cash in order for the lien against his spouse's property to be lifted. The Appellant did not act in the best interest of the company.

[46] There was not a final determination in the case at bar that it was a family asset. There was no declaration to that effect. Even if it was a family asset, the Income Tax Act prevails.

[47] Counsel further referred to Barroso v. The Queen, 97 DTC 338 at page 342 in support of her argument that there was a requirement upon the Appellant to establish by acceptable evidence that there was consideration for the transfer. In this case, he did not do so.

[48] She relied upon Osadchuk v. The Queen, 95 DTC 98 in support of her argument that any benefits conferred were by the Appellant and not the company and there is no merit to the argument that the Appellant's spouse was a 40 per cent shareholder of the company.

[49] Counsel referred to the case of Kondrat v. The Queen, 96 DTC 1566 in support of her argument that the corporation in the case at bar was not a spouse, any rights that the Appellant's spouse sought were born of the marriage, the action was not against the corporation even though in law an action against the majority shareholder might indirectly affect the corporation. In that case, as in the case at bar, there was no obligation upon the corporation to the Appellant's spouse for any payment and any such payment by the corporation to the spouse was a payment made for the benefit of the Appellant who was a shareholder.

[50] It was counsel's position that the provisions of subsection 160(4) of the Act do not apply to the present case. Parliament has mandated by that subsection that where the transaction is between the spouses it will not be taxable. However, in the present case the corporation was not a spouse and there was no transfer between spouses. There is no ambiguity with respect to the purpose of this section. Parliament could not have intended to allow one to strip the assets of a company to pay a matrimonial debt in order to escape taxation. There was no consideration for the transfer.

[51] With respect to the valuation, counsel argued that the proper valuation was the amount set out in Exhibit A-1, the Notice of Assessment. That is the amount that was transferred to the Solicitors of the Appellant's spouse, that was the value of the benefit and that was in accordance with the decision in Algoa Trust (supra).

Rebuttal

[52] In rebuttal, counsel for the Appellant reiterated his argument that under section 160 of the Income Tax Act interest can only be charged up to the date of transfer and if the Court should find that interest was charged after that date then it should be struck down. Section 160 is a collection section and not a taxing section.

[53] With respect to any conflict between the federal and provincial statute, counsel argued that provinces are entitled to legislate with respect to property and civil rights. The Income Tax Act applies to that provincial legislation. The British Columbia law is considerably different than both the Alberta and Ontario statutes which were considered in the cases referred to. There is nothing in those acts that say that the claiming spouse is declared to have a one-half interest in the property.

[54] In the case at bar there was a triggering event before the transfer of property took place. At that time the Appellant's spouse was a shareholder entitled to one-half of that asset. This position could only be overturned by an application under section 51 of the Family Relations Act and the evidence made it clear that this was not done.

[55] What was created by the statute in favour of the wife was not a debt, it was actual ownership. There has been sufficient evidence produced to the Court to allow it to conclude that under the law this was a family asset.

[56] With respect to the provisions of subsection 160(4) of the Act, this section was clearly designed to deal with a matrimonial situation even though a corporation may not be a spouse. At the time of the transaction the wife was a 40 per cent shareholder and the corporation acted through its shareholders. If the property was not that of the wife alone, the property was owned 50-50 between her and the Appellant and the Appellant should only be taxed on the amount of his interest in the property.

[57] Following completion of the argument in this case the Court directed that both counsel appear again in open Court to address, if they wished to, two issues which the Court believed had not been specifically addressed in the original arguments. Both counsel decided to address the Court on these issues.

[58] Counsel for the Appellant referred to the case of Fluxgold v. The Queen, 90 DTC 6187, on the issue of joint and several liability, and took consolation from it in concluding that nothing under section 160 of the Act operated to make the taxpayer’s wife jointly and severally liable for any tax arrears owing by F. Limited at the time of the transfer, the transfer was from the husband (F. and not F. Limited). Counsel reiterated his position as earlier stated in relying upon the case of Blackett v. Blackett, supra at page 103 arguing again that section 43 of the British Columbia Statute gave the wife an undivided one-half interest in the shares and not an undivided one-half interest in the value of the shares. Therefore, the benefit of the transfer to the taxpayer could be no more than fifty per cent of the value.

[59] On behalf of the Respondent, counsel said that even if the Appellant’s spouse had a forty per cent interest in the shares the husband received the whole benefit of the transfer and should be taxed thereon. Further both the husband and the wife were jointly liable for the transferred value. Further, with respect to the matter of consideration, even if there were no asset in the company the husband taxpayer received the total value of the company’s interest and therefore that was his consideration.

Analysis and decision

[60] The Court will deal with the second, third and forth arguments of counsel for the Appellant, which the Court considers to be peripheral arguments, as opposed to the main argument under the provisions of the British Columbia Family Relations Act.

Subsection 160(4) of the Act

[61] The Court rejects this argument outright and finds that it is not applicable to the facts as disclosed in the evidence. Whether or not the transfer by the company to the purchaser and by the company to the wife was contemporaneous or not, this subsection does not act so as to make the value of the transfer nil. The Court is satisfied that there is no ambiguity with respect to the interpretation of this section and consequently there can be no presumption in favour of the taxpayer. This interpretation is reasonable as far as the Court is concerned in spite of the fact that section 160 purports to attach tax to someone not otherwise taxable.

[62] The argument of counsel for the Respondent on this issue is accepted and the Court is satisfied that a reasonable interpretation of this section would indicate that Parliament could not have intended to allow the asset of the corporation to be disposed of to satisfy the matrimonial liability of one of the spouses without some tax consequences.

Calculation of interest

[63] The Court is satisfied that the proper amount for the Minister to have considered in the application of the tax under section 160 of the Act was the total amount applicable to the Appellant, of the amount assessed against him by the Notice of Taxation dated June 2, 1995 for $52,662.30. This was the same amount shown in the Appellant's own documents, Exhibit A-13, as the amount which was transferred to the solicitors for the Appellant's spouse on May 17, 1988.

[64] The Court is satisfied that the assessment did not offend the principle as outlined by Dussault, J.T.C.C. in the case of Algoa Trust (supra). There was no evidence introduced before the Court which would entitle it to conclude that this was not the proper figure, the only question being whether or not the whole amount should be attributable to the Appellant.

Consideration

[65] The Court is satisfied that it must reject the argument of counsel for the Appellant that there was a consideration passing from the Appellant because he owed a duty to the company even if there was an appropriation by Mr. Leigh of the company's asset.

[66] The Court is satisfied that there was no consideration passing of any value, certainly not of equal value, for the property transferred because of the services performed by the Appellant for the company whether or not a right of recovery existed.

[67] There remains for consideration the argument of the Appellant that if any property was transferred to the Appellant's former spouse, it was transferred by the corporation to his former wife in satisfaction of her interest in the corporation and not in satisfaction of any liability of the Appellant to his former wife, therefore there was no tax liability to the Appellant as a result of the transfer. Alternatively if there was any liability it was only in the amount of $20,912.00 as the amount paid by the company in excess of Mrs. Leigh's one-half interest in the company's assets.

[68] The Court rejects the first part of the argument by counsel for the Appellant that any property transferred to his former wife was transferred by the corporation to his former wife in satisfaction of her interest in the corporation and not in satisfaction of any liability of the Appellant to his former wife. That is contrary to the evidence and the Court is satisfied that the transfer was in consideration of the liability of the Appellant to his former wife, in partial satisfaction of this liability.

[69] The only question that remains is the extent of the interest of the Appellant in the transferred asset upon which he should be taxed in accordance with the provisions of section 160 of the Act.

[70] The Court is satisfied that the provisions of the Family Relations Act of British Columbia in effect at the relevant date, were significantly different than the sections relating to matrimonial property as considered by Bowman, J.T.C.C. with respect to the Ontario Family Law Reform Act, in the case of Nevidon v. R. (supra). In that case, Judge Bowman was not satisfied that the property in issue was a family asset as defined in the relevant statute. Further, he was satisfied that if it were a family asset, the effect of the Act was not to alter the beneficial ownership of the family assets between the spouses so as to effect the incidence of taxation under the Income Tax Act. The Court is satisfied that that case can be distinguished from the facts in the case at bar.

[71] Further, the Court is satisfied that the provisions of the British Columbia Statute were significantly different from those of the Matrimonial Property Act for the Province of Alberta, which was considered by Rip, J.T.C.C. in the case of Kondrat v. The Queen, (supra) and that case can be distinguished from the factual situation in the case at bar.

[72] The Court is satisfied that at the time of the transfer of the property in question or before, as a result of the combined effect of sections 43, 44, 45, 46, 48 and 50 of the British Columbia Statute, the Appellant's spouse had an equal interest in the asset that was transferred, together with the Appellant and that interest was enforceable against the Appellant. The Court is satisfied that the "triggering event" had taken place which had the effect of conveying to the wife a right to one-half of that asset, which at that time was a family asset.

[73] There was sufficient evidence given before this Court to satisfy it that the factual situation in existence at the time of the transfer was sufficient to bring into play the appropriate sections of the British Columbia Statute, so that on the facts and law, on the date of the transfer, the Appellant's spouse and the Appellant each had an undivided one-half interest in the family asset as tenants in common and those family assets included the property in issue in this case.

[74] This result persisted and would persist until such time as the Appellant would have obtained a judicial reapportionment under section 51. The Appellant did not obtain such a reapportionment (and indeed the resulting separation agreement signed by both the parties and the transfer on behalf of the corporation thereafter confirmed that he had no intention of doing so).

[75] Consequently, in spite of the fact that the Appellant had earlier claimed that the asset in issue was not a family asset, that he defended the provincial action on that basis, this did not have the effect of altering the effect of the statute by the date of transfer.

[76] Consequently, by the time of the transfer, the action taken on behalf of the company was taken on behalf of both the Appellant and the Respondent acting as equal shareholders in the corporation since each agreed to the sale of the property and the transfer of the receipt to the Solicitor for the Appellant's spouse. One would have to conclude that the transfer that took place was a transfer by or on behalf of equal shareholders of an asset of the corporation for the benefit of both the Appellant and his spouse. This was to be the effect of the actions of the shareholders in spite of the fact that the company was not a party to the legal action against the Appellant by his spouse. The actions taken were by the majority shareholders of the corporation and were not the actions of the Appellant alone.

[77] At the time of the transfer, it was certainly open to the Appellant's spouse, as an equal shareholder, to take an action to have the company property sold and the proceeds thereof divided in accordance with the law. In that event the Appellant's spouse would have been entitled to receive a one-half interest in the proceeds of the asset. Both the principal shareholders, by signing the agreement, had agreed that this action was not necessary, but the effect was the same.

[78] Counsel for the Respondent had some concerns as to the priority of the Income Tax Act over the Provincial Statutes. However the Court is satisfied that the two statutes are not in conflict. The Court does not have to decide if the provisions of the Income Tax Act prevail over the provisions of the Family Relations Act. The Provincial legislature of the Province of British Columbia certainly had the authority to pass legislation with respect to property and civil rights. The Income Tax Act does not purport to take away that right. The Income Tax Act only comes in to play after the provincial statute has determined the ownership of the asset in issue.

[79] The Court is satisfied that that does not end the matter because it is necessary to consider the effects of section 160 of the Act on the liability of the Appellant because that section clearly refers to the joint and several liability of the transferor and the transferee and this Court is satisfied that both the Appellant and his spouse were the transferees. (In the sense that the transfer was on their behalf by them acting as equal shareholders, and for their equal benefit.)

[80] The issue before this Court is with respect to the liability of the Appellant only and not with respect to the liability of his spouse, irrespective of her liability in the event that she had been assessed. This might be so even though the right to assess her might be statute barred.

[81] Counsel for the Respondent urged the Court to conclude that the provisions of section 160 of the Act make both the Appellant and his spouse equally liable for the debt as the section refers to joint and several liability of the transferee and the transferor. Her position was that both the husband and the wife were equally liable for the value of the transfer together with the transferor company where as the position of counsel for the Appellant was that the section does not impose joint and several liability upon the spouse for each others debt but joint and several liability of each spouse with the transferor company to the extent of each spouse’s interest in the transferred asset.

[82] The Court is satisfied that a reasonable interpretation of the section would dictate that the liability of each spouse is joint and several with that of the transferor, in this case the company, in whatever interest each party had in the asset transferred. It would be unreasonable to conclude that the section would impose liability upon either one of the spouses for the total value of the property transferred even in the event that each party only owned fifty per cent of the value of the asset transferred.

[83] In the case at bar the Court has found that at the time of the transfer both the Appellant and his spouse had an undivided one-half interest in the value of the asset transferred and at that time each of them were jointly and severally liable, with the transferor company, to the extent of the value of their interest in the asset that was transferred. In this case the Appellant, together with his spouse, were liable for one-half of the value of the asset transferred which was $52,662.30.

[84] Therefore, the Appeal is allowed and the matter referred back to the Minister of National Revenue for reassessment and reconsideration based upon this Court’s finding that the Appellant is responsible for one-half of the amount of $52,662.30, being the value of his interest in the asset that was transferred, without consideration.

[85] The Appellant is entitled to his costs of this action to be taxed, or agreed upon.

Signed at Ottawa, Canada, this 30th day of October 1998.

T.E. Margeson

J.T.C.C.