Date: 19980409
Docket: 94-604-IT-G; 94-605-IT-G
BETWEEN:
LUCILLE B. CRIBB-McKEOWN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND
BETWEEN:
560233 ONTARIO LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Sarchuk, J.T.C.C.
[1] These are appeals by Lucille B. Cribb-McKeown (the
Appellant) from assessments of tax with respect to her 1988,
1989, 1990 and 1991 taxation years and by 560233 Ontario Limited
(560233) from an assessment of tax for its taxation year ending
June 30, 1991. By consent of all parties, the appeals were heard
together on common evidence.
[2] A number of issues were raised by the Appellant in her
Notice of Appeal, all of which have been resolved, save one. The
remaining issue flows from the assessment by the Minister of
National Revenue (the Minister) of her 1990 taxation year which
had the effect of adding to her income a shareholder benefit in
the amount of $232,500 resulting from the transfer to her by
560233 of a residence described as 44 Elgin Avenue, Toronto,
Ontario (the residence). The Minister also assessed 560233 by
adding a capital gain in the amount of $232,500 to its Canadian
investment income arising from the transfer of the residence. In
both instances, the Minister proceeded on the assumption that the
fair market value of the residence on October 12, 1990 was
$657,500.
Evidence
[3] The following facts have been admitted by the parties:
1. Mrs. Cribb-McKeown purchased 44 Elgin Avenue (the
“Residence”) on or about October 24, 1978.
2. Mrs. Cribb-McKeown purchased the Residence for the purpose
of using it as the principal residence for herself and Mr.
Cribb.
3. From 1978 to 1983, Mrs. Cribb-McKeown used the Residence as
the principal residence of herself and Mr. Cribb.
4. From 1978 to 1983, Mr. and Mrs. Cribb-McKeown had exclusive
use of the Residence.
5. 560233 Ontario Limited (“560233”) was
incorporated on or about August 17, 1983.
6. Mr. Cribb and Mrs. Cribb-McKeown each owned 50% of the
shares of 560233.
7. Mrs. Cribb-McKeown made shareholder’s advances to
560233 from time to time.
8. 560233 issued shares to Mrs. Cribb-McKeown in respect of
the transfer of the Residence from Mrs. Cribb-McKeown to 560233
(that legal title to the Residence only was transferred is not
admitted).
9. 560233 did not claim any capital cost allowance in respect
of the Residence at any time.
10. After the Residence was transferred by Mrs. Cribb-McKeown
to 560233 (that legal title to the Residence only was transferred
is not admitted), Mrs. Cribb-McKeown continued to live at
the Residence.
11. Mr. Cribb died on or about May 12, 1984.
12. On or about June 20, 1984, a writ was issued in the
Supreme Court of Ontario by Midland Bank Canada against, inter
alia, Mrs. Cribb-McKeown as the Executrix and Trustee under
the last Will and Testament of Peter Cribb as action no. 19054/84
(the “Midland Bank Action”).
13. The Midland Bank Action involved a claim by Midland Bank
against the estate of Mr. Cribb on an undertaking executed by Mr.
Cribb on or about June 23, 1982 to pay to Midland Bank any
amounts owing by Sheelan Investments Limited to Midland Bank at
any time after June 30, 1982.
14. Midland Bank claimed that as of March 31, 1984, Sheelan
Investments Limited was indebted to it in the amount of
$4,994,262.07 and claimed payment of this amount from the estate
of Mr. Cribb.
15. The Midland Bank Action was settled pursuant to Minutes of
Settlement dated March 3, 1988.
16. The Minutes of Settlement provided that Mrs. Cribb-McKeown
pay to Midland Bank the amount of $375,000, to be secured by a
mortgage to be given by 560233 and registered against the
Residence in the amount of $375,000.
It is also agreed that the residence was transferred back to
Mrs. Cribb-McKeown by 560233 on or about October 12, 1990
and that at the time of this transfer, no attempt was made by
560233, Mrs. Cribb-McKeown or her advisors to determine its fair
market value.
[4] The Residence: The property in issue, located in an area
near the University of Toronto, was purchased by the Appellant in
October 1978. Formerly a rooming house, it was renovated and
converted by her husband, Peter G. Cribb (Cribb), into their
personal home. The Appellant resided therein from August 1979
until its sale in 1990.
[5] The Transfer: Several years prior to his death, Cribb and
a number of other investors formed a consortium to develop a
shopping centre. Midland Bank Canada (Midland) was involved in
financing the development. The project ran into financial
difficulties and in June 1982, Cribb executed an undertaking in
favour of Midland whereby he agreed to be responsible for and pay
to Midland all amounts of principal and interest which remained
owing or payable to it after June 30, 1982. On August 17, 1983,
560233 was incorporated. The Appellant and Cribb were the sole
directors and officers as well as being the principal
shareholders.[1] At
the same time, Cribb established the Peter G. Cribb Family Trust,
the trustees of which were the Appellant, Dennis Bodley and Susan
Kelly. On August 25, 1983, the Appellant transferred the
residence to 560233 and received as consideration therefor the
amount of $435,000 satisfied by the issuance of a further 43,500
special shares.[2]
Concurrently, 560233 agreed to purchase from G. Cribb Limited
certain properties held in trust for it by the Appellant and
Cribb. Both were directors, officers and shareholders of the
vendor. The Appellant testified that these steps were taken as a
result of the fact that Cribb was having difficulties with
certain creditors, in particular, Midland, and was concerned that
their assets were at risk of seizure. It was also her
recollection that Cribb had received professional advice with
respect to these transactions and that she “probably”
had as well, but that the decision to go ahead was principally
that of her husband.[3]
[6] The Law Suit and Settlement: Shortly following her
husband’s death in 1984, Midland launched a suit against
the Appellant in her capacity as Executrix and Trustee under the
last Will and Testament of Peter Cribb, deceased, and against
other members of the consortium. The Appellant testified that
560233 was not a party to the litigation and that the claim in
the amount of approximately $5,000,000 being pursued by Midland
was with respect to a personal debt of Cribb. A statement of
defence and counter-claim was filed by the Appellant.[4] The litigation had
dragged on for several years when the Appellant learned that
another defendant was in the process of effecting a settlement
with Midland. She was made aware that proceeding to trial would
have been excessively expensive and as a result, dismissed her
Counsel and personally began to negotiate a settlement. In due
course, the Appellant agreed that the Estate would pay Midland
the amount of $375,000. The settlement was effective as of March
3, 1988 with the amount to be paid on or before September 3,
1988.[5] To secure
payment, the Appellant was required to direct 560233 to grant
Midland a first charge on the residence.[6]
[7] In February 1988, as the settlement discussions were
drawing to a close, the residence was listed for sale at a price
of $825,000. No offers were received. In June of that year, it
was listed as a rental property at $3,500 per month.
Subsequently, the rental was reduced but there was no interest
and the residence was taken off the market. The Appellant has no
specific recollection of how Midland was ultimately paid but did
indicate that in the period from 1985 to 1989, she had purchased
some rental properties and that:
“I don’t remember ... when the buildings were sold
because there was not just one building, there were a few
buildings, and I got tired of getting up during the night to let
people in without a key, and so I sold. So whatever the monies I
had is probably what I used to pay, I don’t know”.[7]
[8] The Re-Transfer: In October 1990, the Appellant caused
560233 to transfer the residence to her for total consideration
of $425,000.[8] She
stated there were no further concerns that it was at risk of
seizure by creditors. On the recommendation of her accountant,
Bodley, she consulted a “tax expert”, Val Hack, with
respect to the transfer and the proposed consideration therefor
and was advised to go ahead.[9]
[9] Evidence was also adduced from Olga Scinocco, an insurance
broker. She was an employee of Chris Steer Insurance Brokers
(Steer) which business had provided insurance coverage with
respect to all of the properties owned by the Appellant and
560233 for a number of years. Scinocco testified that from
December 31, 1988 to December 31, 1990, the residence was covered
with a homeowner’s insurance policy with the named insured
being the Appellant, Erwin McKeown and 560233. Coverage included
the residential dwelling including personal property and
contents, third party liability and excess liability coverage.
Effective December 31, 1990, a new policy was issued with respect
to the residence with Zurich Insurance covering similar losses to
those referred to in earlier years. The insured with respect to
this policy was the Appellant alone. As well, Scinocco arranged
what she described as commercial policies, three of which were
assets of 560233 and the fourth, the registered owner of which
was an unrelated third party, included loss payable to the
Appellant.
[10] Vivi Roy, a real estate sales representative, testified
that in 1988, the residence was listed for sale from February to
July at a price of $825,000. The information reflected in the
listing agreement was obtained from the Appellant and as a result
of Roy’s inspection of the residence. Roy was also the
listing agent with respect to the proposed rental of the
residence and as before, the rental sought and other information
was obtained by Roy from the Appellant and from her own
inspection of the property. In both instances, the Appellant was
listed as either vendor or lessor.
[11] The Bodley Videotape: In the course of this appeal,
Counsel for the Appellant offered as evidence a statement made by
Dennis W.A. Bodley (Bodley), recorded by videotape. Bodley was a
chartered accountant and acted in that capacity for Cribb, 560233
and the Appellant. Following Cribb’s death in 1984, he
continued to provide accounting, financial and income tax
services to the Appellant and 560233 and, subsequent to the
assessments, negotiated on their behalf with Revenue Canada. A
voir dire was held to determine the admissibility of this
statement. As part of the voir dire the Court viewed the
videotape.[10]
[12] The circumstances leading to the videotaping of
Bodley’s statement are as follows. This appeal was
originally scheduled to proceed on June 24, 1996. On that day, I
heard a motion by the Appellant for an Order adjourning the
hearing on the ground that some five days earlier Bodley suffered
a heart attack and was still hospitalized. The Appellant’s
motion was granted. In addition, given Bodley’s condition
and unfavourable prognosis, the Court, on consent of all parties,
directed that the oral testimony of Bodley may be taken before
the hearing of the appeal for the purpose of having his testimony
available to be tendered as evidence. The Court further ordered
that the evidence be recorded by a qualified Court reporter who
will prepare a complete transcript of such evidence and by
audio-video equipment which will permit the witness to be heard
and seen simultaneously in the course of giving his testimony.
Mr. Bodley died July 28, 1996 prior to the taking of his evidence
pursuant to this Order. However, on June 22, 1996 Counsel
for the Appellant attended at the hospital and recorded a
question and answer session with Bodley concerning the matters in
issue in this appeal.[11]
[13] The Bodley statement is being proffered as evidence as an
exception to the rule against hearsay. The basic rule can be
stated as follows:
“Written or oral statements, or communicative conduct
made by persons otherwise than in testimony at the proceeding in
which it is offered, are inadmissible if such statements or
conduct are tendered either as proof of their truth or as proof
of assertion implicit therein”.[12]
The statements made by Bodley are clearly hearsay as set out
in the rule and thus, prima facie inadmissible.
[14] Necessity has given rise to a number of exceptions to the
hearsay rule. The requirement that testimony be subjected to the
test of cross-examination has been relaxed in situations where
the declarant of the words in question is unavailable and the
statement was made under circumstances which, it can be presumed,
would impress the remarks with a genuinely trustworthy quality.
In many situations such declarations are the only cogent evidence
available and to exclude them would result in considerable
inconvenience.[13] Exceptions to the hearsay rule therefore develop in
situations where, as Sir Jessel M.R. stated in Sugden, the
following four characteristics existed:
(1) It was impossible or difficult to secure other
evidence.
(2) The author of the statement was not an interested party in
the sense that the statement was not in his favour.
(3) The statement was made before the dispute in question
arose.
(4) The author of the statement had a peculiar means of
knowledge not possessed in ordinary cases.[14]
[15] In R. v. Khan[15] and R. v. Smith[16], the Supreme Court further
defined the circumstances in which hearsay evidence may be
admissible. Rather than attempting to fit hearsay into one of the
common law exceptions which had developed over time and/or to
continue to expand these exceptions, the Court adopted the dual
test of necessity and reliability.[17] In its determination of the issue
in Smith, Lamer C.J. said:
This Court’s decision in Khan, therefore,
signalled an end to the old categorical approach to the admission
of hearsay evidence. Hearsay evidence is now admissible on a
principled basis, the governing principles being the reliability
of the evidence, and its necessity. A few words about these
criteria are in order.
According to Lamer C.J.:
The criterion of “reliability” - or, in
Wigmore’s terminology, the circumstantial guarantee of
trustworthiness - is a function of the circumstances under which
the statement in question was made. If a statement sought to be
adduced by way of hearsay evidence is made under circumstances
which substantially negate the possibility that the declarant was
untruthful or mistaken, the hearsay evidence may be said to be
“reliable”, i.e. a circumstantial guarantee of
trustworthiness is established. ...
Lamer C.J. then stated that:
The companion criterion of “necessity” refers to
the necessity of the hearsay evidence to prove a fact in issue.
...
and stipulated that:
... the criterion of necessity must be given a flexible
definition, capable of encompassing diverse situations. What
these situations will have in common is that the relevant direct
evidence is not, for a variety of reasons, available. Necessity
of this nature may arise in a number of situations. Wigmore,
while not attempting an exhaustive enumeration, suggested at 1421
the following categories:
(1) The person whose assertion is offered may now be dead, or
out of the jurisdiction, or insane, or otherwise unavailable for
the purpose of testing [by cross-examination]. This is the
commoner and more palpable reason ....
(2) The assertion may be such that we cannot expect again or
at this time, to get evidence of the same value from the same or
other sources ... . The necessity is not so great; perhaps hardly
a necessity, only an expediency or convenience, can be
predicated, but the principle is the same.
Clearly the categories of necessity are not closed. In
Khan, for instance, this Court recognized the necessity of
receiving hearsay evidence of a child’s statements when the
child was not herself a competent witness. We also suggested that
such hearsay evidence might become necessary when the emotional
trauma that would result to the child if forced to give viva
voce testimony would be great. Whether a necessity of this
kind arises, however, is a questions of law for determination by
the trial judge. [18]
Lamer C.J. concluded that:
... Where the criteria of necessity and reliability are
satisfied, the lack of testing by cross-examination goes to
weight, not admissibility, and a properly cautioned jury should
be able to evaluate the evidence on that basis.[19]
[16] With these principles in mind, I now turn to the
statement itself. It is approximately one and three-quarter hours
in length and contains a substantial amount of extraneous
material not relevant to the matter before the Court. The balance
of the statement lends itself to division into five somewhat
overlapping sections. The first relates to Cribb’s
financial affairs in the late 1970s and early 1980s, with
emphasis on his involvement in the shopping centre project and
the related financial problems. The second reflects the transfer
of assets by the Appellant and Cribb to 560233. The third deals
with the period of time following Cribb’s death and the
various steps taken by the Appellant and her solicitors to
resolve the Midland lawsuit. The fourth relates to the manner in
which 560233 accounted for the residence in its books during the
relevant periods of time and with respect to the re-transfer.
Last, he speaks of his negotiations with Revenue Canada on
behalf of the Appellant following the assessment.
[17] Counsel for the Appellants argued that the requisite
element of necessity exists in that the declarant is no longer
available to testify. That, however, does not end the matter
since there remains the question whether evidence of the same or
better value could not have been obtained from other sources.
[18] There is no dispute that Cribb was in financial
difficulty as a result of his involvement in the project. The
Appellant’s testimony and numerous documents amply
establish that fact. Bodley’s reflections on the genesis of
Cribb’s problems, the conduct of other investors and of the
lending institutions (based in large measure on information
provided by other individuals) while interesting, are generally
inadmissible, have no more than marginal probative value and are,
in my view, unnecessary.
[19] Cribb was concerned that assets were in jeopardy as a
result of his financial difficulties. As was observed by the
Appellant, this problem was under constant consideration and a
lawyer, Arnold, was consulted. Bodley attended some of the
meetings. He says that Arnold suggested the sale of all assets
owned by the Appellant and Cribb to a newly incorporated company,
as well as the concurrent establishment of a family trust. It is
not possible to determine from his statements whether he was
present when the recommendations were made and the decision taken
or whether this information was passed on to him by Cribb. In his
statement, Bodley also comments on the rationale for and the
efficacy of the plan proposed by Counsel. It is not possible from
Bodley’s statement to determine the basis for his opinions.
There is no suggestion by the Appellant that she could not at
this time expect to get testimony of the same (or better) value
from other sources, in particular, from the solicitor,
Arnold.
[20] The same issues arise with respect to Bodley’s
statements regarding the resolution of the Midland law suit.
First, the Appellant says that she personally conducted the final
stages of the negotiations which led to a settlement. Second, the
settlement documents indicate that both the Appellant and 560233
agreed to the terms following advice from their respective
solicitors. Nothing before me suggests that Counsel who advised
them are unavailable and that any evidence considered necessary
for the purposes of these appeals could not have been obtained
from these sources. Although Bodley says he attended some of the
meetings with Midland Bank (a fact the Appellant does not
confirm), his statement adds nothing to her testimony and to the
settlement documents filed as exhibits.
[21] With respect to the re-transfer of the residence, advice
with respect to income tax issues and the transfer value was
obtained from Val Hack, the tax consultant. The Appellant
testified that she relied completely on Hack’s advice,
adding only that “Dennis (Bodley) didn’t say anything
not to do it”. She further testified that with respect to
the actual re-transfer, she attended at the offices of her
solicitor, Clapp, but has no recollection of the nature of their
discussions. There is no evidence before the Court to indicate
that Hack and/or Clapp were not available to testify with respect
to this issue.
[22] With respect to the foregoing, it might be, from the
Appellant’s standpoint, expedient or convenient to have
Bodley’s statement admitted into evidence but, in the
present circumstances, that is not a valid basis. Other witnesses
of potentially equal value appear to have been available and
there is no evidence before me that there were problems in
locating them or possible difficulties in making arrangements for
their attendance.
[23] The second test, reliability, or the circumstantial
guarantee of trustworthiness, requires careful consideration of
the circumstances under which the statement in question was made.
It is the Appellant’s responsibility to demonstrate that
the hearsay statement is reliable or, as stated in Smith,[20] that it was
made under circumstances which substantially negate the
possibility that the declarant was untruthful or mistaken.
[24] In the present appeals, this requirement presents a
particularly difficult problem. In the cases cited by Counsel and
otherwise reviewed by this Court, the statements in issue were
both spontaneous and contemporaneous with the event.[21] While no principle
exists that failure to establish the contemporaneous nature of
the statements automatically renders them inadmissible, one
cannot ignore the fact that the events in issue occurred between
1982 and 1990. It is equally evident that the statement was not
made before the dispute in question arose. Furthermore, the
statement was not in any sense of the word spontaneous, having
been made, for the most part, in response to specific and
occasionally leading questions. I accept that the interview was
conducted for the purpose of preparing Bodley to testify and
thus, there was nothing inappropriate with respect to the manner
in which it was conducted. However, that statement is now being
proffered as evidence, thus on the issue of reliability the
manner in which the responses were made must be taken into
account.
[25] Is Bodley a disinterested party? In truth, he is not a
party to the matters in dispute and the statement made was not
specifically intended to improve his case. Nonetheless, he is far
from a disinterested witness. At all relevant times, he was the
accountant for the Appellant, Cribb and 560233. He asserts that
he was involved in the decision-making process with respect to
the incorporation of 560233 and the transfer of the various
properties to it. He then made all of the entries in the
company’s books he believed necessary to “protect
assets from creditors”. He also conceded that the books
contained errors with respect to matters relevant to the issue
before the Court (the extent of which cannot be explored). In my
view, he was a witness who is indirectly interested in the
outcome of these proceedings, thus the danger of reconstruction
is high and for obvious reasons, not challengable by
cross-examination. Furthermore, in the course of his statement,
he was patronizing in the extreme to the Appellant, implying that
he had a major role in her decision-making beyond the mere giving
of advice. He suggests that he took it upon himself to
“guide” her in the conduct of her affairs after her
husband’s death because in his view, “she was
incapable of doing so herself”. Whether this was actually
the case is not the issue. If Bodley believes that much of what
occurred came about as a result of the advice he gave, there is a
serious question whether his responses were coloured by a desire
to justify that advice.
[26] Bodley prepared and filed the relevant income tax returns
and, following assessments in issue, represented both Appellants
and made submissions on their behalf to Revenue Canada. In the
course of his statement, he demonstrated a degree of hostility to
Revenue Canada (whether justified or not is quite irrelevant) to
the point of implying that an auditor deliberately misplaced a
document which Bodley says he provided with the result that key
evidence for the Appellant was no longer available. I add only
that the Appellant herself makes no reference to the existence of
such a document and Arnold, who is said to have drafted it, did
not testify.
[27] Further concern with respect to the reliability and
trustworthiness of Bodley’s testimony is raised by his
conduct. This arises from his wholehearted endorsement and
participation in what may have been an illegal scheme, i.e. a
series of fraudulent conveyances designed to put certain
properties beyond the reach of creditors. Although no creditors
suffered as a result and although it may well be argued that the
questionable conveyances would not have precluded the creditors
from reaching the properties in any event, that is not the point.
If the purpose ascribed by Bodley to the transactions is true, it
is evident that he was prepared to do whatever was necessary to
achieve that end. If this involved maintaining
“false” records to create the facade that these
properties were the assets of 560233 and to have others act on
such records (perhaps to their detriment) did not seem to trouble
him.[22]
[28] It has been said that there is generally a presumption
that a witness is telling the truth until the contrary is proved.
However, in this case, Bodley has by his words and conduct,
demonstrated a willingness to dissimulate in order to pull the
wool over the eyes of creditors. While it may be argued that the
concerns I have expressed should only go to the weight to be
given to Bodley’s statements, their cumulative effect is
such that I can only conclude that the Appellant has failed to
establish a circumstantial guarantee of reliability and
trustworthiness with respect thereto. Accordingly, the statement
is not admissible.
Appellants’ Position
[29] The Appellants contend that the transfer of legal
interest in any property without transferring beneficial
ownership is not a disposition of property within the meaning of
the Income Tax Act.[23] In this case, the Appellant says a resulting
trust existed since there was a common intention between her and
560233 to create a trust in her favour. Accordingly, 560233 did
not have a capital gain and the Appellant did not receive a
shareholder benefit upon the transfer of legal title to the
residence from 560233 to her nor did she receive a shareholder
benefit arising from her living in the residence.
[30] Counsel for the Appellants put forward several
propositions in support thereof. First, that a resulting trust is
based on the presumption that he who supplied the purchase money
meant the purchase to be for his own benefit, rather than for
that of another, and that the conveyance in the name of the
latter is no more than a matter of convenience and arrangement
between the parties for other purposes.[24] Counsel contends that in the
present appeals, the evidence establishes that the Appellant
purchased the residence and that the conveyance to 560233 was an
arrangement for other collateral purposes, i.e. the protection of
assets from creditors. Second, the existence of a resulting trust
is supported by the fact that the Appellant intended to retain
beneficial ownership in order to maintain her entitlement to the
principal residence exemption upon its ultimate disposition.
Last, Counsel argued that in the absence of a written trust
agreement, a resulting trust may be established by parol despite
the Statute of Frauds.[25]
[31] In Pettkus v. Becker,[26] Dickson J. (as he then was)
observed that:
“... the resulting trust is not available, as Professor
Waters points out, (at p. 374): ‘where the imputation
of intention is impossible or unreasonable’ ... “
On the evidence before me, it is neither possible nor
reasonable to conclude that a resulting trust existed.
[32] To accept the Appellants’ proposition, it is
necessary to find that both 560233 and the Appellant were of one
mind with respect to the existence of a trust. That proposition
rests principally on the testimony of the Appellant herself. She
said that in 1984, when the transfer occurred, the arrangements
were made by her husband with the advice and assistance of
Counsel, Arnold. Although kept informed and having executed all
of the required documents, she professes to have only a general
understanding as to the purpose underlying the transactions. On
the other hand, she maintains that both she and 560233 intended
that, notwithstanding the documents, only legal title would pass.
This testimony must also be considered in light of the fact that
the disposition formed but one part of a “package”
which included the incorporation of 560233 and the establishment
of a family trust.
[33] With respect to the submission that the most relevant
conduct of the parties relates to the financial arrangements in
the acquisition of the property, it must be observed that the
acquisition and disposition are well separated in time, some six
years in fact. Thus, the conduct which most appropriately should
be scrutinized relates to the arrangements for the disposition of
the residence. The conveyance of the residence to 560233 was for
good and valuable consideration, a factor totally inconsistent
with the proposition advanced by the Appellants.
[34] It is indisputable that at all relevant times, the
corporate records listed the residence (along with all of the
other properties transferred to it at that time) as assets of
560233, and that in all subsequent years until 1990, it was
treated as such for all purposes, another fact clearly
inconsistent with a common intention to create a trust. It was
suggested in argument that such treatment was merely a necessary
facade since 560233 had to appear to own these properties in
order to protect assets from creditors. Thus, the form of the
transfer and the consideration paid should be ignored as
irrelevant. This proposition, however, is not consistent with the
Appellant’s testimony to the effect that this was her asset
and the debts were solely those of Cribb. She was not sued by
Midland in her personal capacity and there is no evidence to
demonstrate that any property she owned in her own right was at
risk.
[35] There is no acceptable evidentiary support for the
proposition that at the time of the disposition, the Appellant
intended to retain beneficial ownership in order to maintain an
entitlement to a principal residence exemption. In my view,
counsel’s submission that ab initio such an
underlying motive existed is questionable.
[36] Last, it cannot be said that she is a disinterested
witness, that is one who has no interest in relation to the
matter in question. Hers was the only parol evidence adduced in
support of the position advanced. As contrasted to the
Chrustie case,[27] the failure to call the solicitor who advised Cribb
and “probably” the Appellant with respect to the
transfer, the incorporation of 560233 and the Cribb Family Trust
is a relevant factor. Who better to provide disinterested
testimony with respect to the nature and purpose of the
transactions? As was observed in Bouchard v. The Queen:[28]
“The document was prepared by a reputable firm of
solicitors. It would be contrary to the standards and integrity
of a member of the profession to misstate a material fact for an
ulterior or dishonest purpose.” ...
[37] The Appellant’s claim that 560233 acquired the
residence as a trustee is not supported by probability nor are
the facts relied upon indisputable. As was observed by Dickson J.
(as he then was):
“... The sought-for “common intention” is
rarely, if ever, express; the courts must glean ‘phantom
intent’ from the conduct of the parties.”...[29]
There is far too much ambiguity in the evidence adduced on
behalf of the Appellants to “glean” such an intention
in this case.
Alternative Submissions
[38] Having concluded that there was no resulting trust, it is
now necessary to turn to several alternative arguments submitted
on behalf of the Appellant.
[39] First, it was submitted that if a shareholder benefit is
to be included in computing the Appellant’s income under
subsection 15(1) of the Act, the benefit must have been
conferred with her knowledge or consent or in circumstances where
it is reasonable to conclude that the Appellant ought to have
known the benefit was conferred. Thus, in cases where a
shareholder does not intend to have any property or benefit
conferred on herself and is an unwilling and uninformed
beneficiary, she has not received a shareholder benefit.[30] The Appellant
alleges that although she was the directing mind of 560233, she
clearly had no intention to confer a benefit on herself. If her
professional advisors were wrong regarding the existence of a
trust and were wrong with respect to the accounting treatment
used, it was a mistake made in good faith but on a faulty
premise. Counsel argued that the wording of subsection 15(1)
of the Act refers to some form of action with a strong
component of intent and should not embrace an event that is the
result of mutual mistake between the parties, in this case, the
Appellant and 560233 when the mistake was the result of an act or
omission of a third party operating in good faith but on a faulty
premise.[31]
[40] In Chopp, the Appellant was the major shareholder
in the company. He and his wife purchased a new house and while
on vacation, the corporation advanced a substantial amount to his
lawyer as part of the cash required to complete the purchase of
the home. When recording the advance of the funds, an employee of
the corporation erroneously posted the advance as a debit to the
general expense account “legal corporate”, when it
should have been a debit to the shareholder’s loan account.
At all relevant times, that shareholder’s account had a
credit balance of not less than $150,000, well in excess of the
amount in issue. When the corporate financial statements and
income tax returns for 1989 were prepared and filed, neither the
Appellant nor the corporate bookkeeper nor the accountant
discovered the error. On these facts and Chopp’s testimony
that he had intended to use his shareholder’s loan account
to make up any shortfall in the purchase of his home, the Court
found that no benefit had been conferred.
[41] The Appellants argue that a similar situation exists in
this case in that there was no intention to appropriate funds
from the corporation and there was no intention to defraud. What
existed was nothing more than an honest mistake made by the
professional advisors regarding the existence of a trust.
[42] In my view, the decisions in Chopp, Robinson and
Simons are distinguishable on their facts. There was no
inadvertent accounting error in the present appeal nor was the
“appropriation” the result of a mutual mistake
between parties acting in good faith as was the case in
Robinson. The actions of the accountant, Bodley, were not
based on error and were approved by the Appellant. One cannot
ignore that the corporate records, financial statements, income
tax returns, etc. from 1983 to 1990 reflect exactly what was
intended, i.e. the ownership of all of the properties including
the residence. Furthermore, with respect to the actual benefit,
the valuation placed on the residence in 1990 followed
consultation with a “tax expert”, Hack, and a meeting
with her own solicitor.[32] Her inability to recall the details of their
discussions and the advice given does not alter that fact. As
Bonner T.C.C.J. observed in Stafford v. The Queen[33]
“... Persons who seek to achieve a certain result and
who, for that reason, arrange their legal relationships in a
certain way bear a considerable burden when they assert that the
relationships are to be ignored for other purposes. It is not
enough to say ‘I was only fooling’”.
This comment is most apt in the present circumstances..
[43] As further alternatives, Counsel submitted that in the
event this Court finds that there was no trust:
(a) an adjustment in favour of the Appellant should be
permitted with respect to the transfer value of the residence to
reflect its fair market value and further that a corresponding
adjustment be made to the 560233 shareholder’s advances
account;
or
(b) that the fair market value of the residence and the value
of the redeemable shares as of October 1990 is a taxable dividend
and not a shareholder benefit because the transfer of the
residence formed part of the consideration for the redemption of
the Appellant’s redeemable shares in 560233. Therefore, tax
should be payable by the Appellant only to the extent to which
the value of the residence exceeded the paid-up capital of the
shares redeemed. Counsel further argues that the excess amount
should be considered a deemed dividend distributed by the company
to the Appellant.
[44] The relief sought is not within the scope of this
Court’s jurisdiction. The sole issue before me is whether
there was an appropriation by the shareholder and whether the
benefit resulting therefrom was properly included by the Minister
in computing the Appellant’s income under subsection 15(1)
of the Act. With respect to 560233, the issue is whether
the Minister erred in adding a capital gain to its Canadian
investment income arising from the transfer of the residence.
What the Appellant is seeking is tantamount to a declaratory
Order instructing the Minister to reassess on a completely
different basis, not previously advanced, and which has not been
considered by the Minister. I do not believe this Court has
authority to do so.
[45] The last alternative submission made on behalf of the
Appellant is that in the event the Court finds there was no
trust, the amount of the rental benefit assessed to the Appellant
is excessive. The Minister assumed that the monthly market rental
of the residence in 1988, 1989 and 1990 was $2,500, $2,615 and
$2,735, respectively. The evidence before the Court, Counsel for
the Appellant argued, was that when attempts were made to lease
the property in 1988, no interest was shown even when the rental
was reduced to $2,200. Accordingly, given the prevailing market
conditions as well as the nature of the residence, any rental
benefit to be assessed against the Appellant for the use thereof
should not exceed $2,200 per month.
Conclusion
[46] As previously noted, certain issues have been resolved as
follows:
(a) The Appellants, Cribb and 560233, both took the position
that the fair market value of the residence on or about October
12, 1990 was substantially less than the amount of $657,500
assumed by the Minister in making his assessment.
The Appellants have abandoned their challenge of the
Minister’s valuation.
(b) The Appellant, Cribb, reported a taxable capital gain in
1991 of $150,000 arising from the disposition of 250 common
shares in the capital of 491323 Ontario Limited and claimed a
$150,000 capital gains deduction in her income tax return. The
Minister disallowed the deduction claimed.
The Appellant has abandoned this claim.
(c) Two separate issues arise out of the acquisition of the
Hamilton Heights Golf Club in 1988 by the Appellant, Cribb, and
her husband, Erwin Henry McKeown.
(i) The first issue is whether certain business losses
relating to the operation of the golf club in the amount of
$36,970 in taxation year 1988 are deductible.
The Appellant has abandoned her appeal with respect to this
issue.
(ii) The second issue is whether the Appellant, Cribb, was
entitled to claim certain deductions for interest paid in
taxation years 1988 to 1991.
The parties agree that the Appellant is entitled to claim
deductions for interest paid in the following amounts:
1988 - $2,944;
1989 - $6,226;
1990 - $5,820;
1991 - $5,383.
(d) The rental benefit to be assessed to the Appellant in
taxation years 1988, 1989 and 1990 is $2,200 per month.
[47] The appeals of Lucille B. Cribb-McKeown are allowed to
the above extent only and she is not entitled to any further
relief. The appeal of 560233 is dismissed. In these appeals,
there shall be one set of costs to the Respondent, to be
taxed.
Signed at Ottawa, Canada, this 9th day of April, 1998.
"A.A. Sarchuk"
J.T.C.C.
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