Citation: 2012 TCC 198
Date: 20120820
Docket: 2010-1712(IT)G
BETWEEN:
TAMMY COLBORNE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Angers J.
[1]
The appellant was
assessed an amount of $84,499.89 pursuant to section 160 of the Income
Tax Act (ITA) on June 10, 2008, and the assessment was confirmed on
February 24, 2010. The assessment was issued in respect of transferred property
described as cash payments made to the appellant by 511432 NB Incorporated
(hereinafter referred to as 511) between January 1, 2005 and August 15, 2006
(the period).
[2]
During that period, the
appellant was an employee of 511 on either a full-time or a part-time basis.
She assisted 511's bookkeeper and the accountant and performed some managerial
duties. She was also, during the period, in a common-law relationship with
Ronald Poirier, who was the sole director and shareholder of 511, a corporation
that was in the communications business, more particularly the sale of cell phones.
[3]
Back in 2004, 511 was
experiencing some financial difficulties and in order to generate more revenue
it acquired a "white label" bank machine, that is, an ATM operated independently
of the banks, which it placed at the Colonial Inn Motel (hereinafter referred
to as the Inn) in Moncton, New Brunswick.
[4]
In the relevant period,
511's financial situation had not improved. It was already deeply indebted to
its bank and in order to protect its payroll it opened a bank account with a
different bank, but no line of credit was made available to it except for minor
amounts.
[5]
Since it had no access
to credit, it became difficult for 511 to provide its ATM with sufficient cash
for customers using the machine. This became even more difficult on weekends when
all banks are closed. Although 511 did have a bank card, withdrawals were
limited to a very low amount and it therefore had no access to cash on weekends.
[6]
The appellant's
personal bank account had a $2,000 cash overdraft. As a result, 511 would write
a cheque to her that she could deposit and thereupon withdraw instantly an
amount up to $2,000. She would then deposit the money in 511's ATM so people
could make withdrawals. Within 24 hours, the money withdrawn from the ATM was
automatically deposited back into 511's bank account by a processing centre. If
the cheques payable to her exceeded $2,000, the appellant would only withdraw
the $2,000; she would subsequently make a further withdrawal to eventually
cover the entire amount of the cheque such that the full amount ended up in the
ATM and eventually back in 511's bank account.
[7]
During the period in
question, over $400,000 circulated through the ATM and, of that amount,
$104,982.21 went through the appellant's bank account. From the latter amount there
was subtracted the appellant's net pay for the period, which totalled
$20,482.32, leaving a balance of $84,499.89, which is the amount of the
assessment.
[8]
The majority of the
transactions conducted through the appellant were for the purpose of covering
the weekend transactions on the ATM. That explains why, on some occasions, two
cheques for identical amounts were drawn on the same day. A further deposit
could be made during the weekend, if need be. The need would arise if a
convention or other activity was held at the Inn and, as a consequence, more
withdrawals than usual were made. At the end of the day, all the money
withdrawn from the ATM would end up back in 511's bank account.
[9]
According to the
appellant, all the cheques issued to her by 511 during the period and which she
cashed went back into 511's account within 24 hours of a client making a
withdrawal. The ATM was filled with cash when the staff at the Inn called to inform 511 that the machine could not do anymore transactions.
[10]
The above explanation
was given to the Canada Revenue Agency's collection officer in verbal exchanges
he had with Ronald Poirier. The collection officer later wrote to the appellant
requesting further documents. He was subsequently provided with 511's general
ledger, which shows all the deposits made into 511's account through the
processing centre, including some identified by the number of the cheque issued
to the appellant. The appellant's personal bank statements were not provided to
the collection officer, although, at trial, the appellant stated that she
believed she had provided them.
[11]
The criteria to apply
when considering subsection 160(1) have been stated in many decisions of this
Court and of the Federal Court of Appeal. In the Queen v. Livingston,
2008 FCA 89, Sexton J.A, had this to say at paragraph 17:
1) The transferor must be liable to pay tax under the Act
at the time of transfer;
2) There
must be a transfer of property, either directly or indirectly, by means of a
trust or by any other means whatever;
3)
The transferee must either be:
i. The transferor's spouse or common-law partner at the
time of transfer or a person who has since become the person's spouse or
common-law partner;
ii. A
person who was under 18 years of age at the time of transfer; or
iii. A
person with whom the transferor was not dealing at arm's length.
4) The
fair market value of the property transferred must exceed the fair market value
of the consideration given by the transferee.
[12]
It is of interest, I
believe, to also quote paragraphs 18 and 19 of the Livingston decision
in order to better appreciate the application of subsection 160(1) of the Act.
The
purpose of subsection 160(1) of the Act is
especially crucial to inform the application of these criteria. In Medland v. Canada 98 DTC 6358 (F.C.A.) ("Medland") this Court concluded that "the object
and spirit of subsection 160(1), is to prevent a taxpayer from transferring his
property to his spouse [or to a minor or non-arm's length individual] in order
to thwart the Minister's efforts to collect the money which is owned [sic]
to him." See also Heavyside v. Canada [1996]
F.C.J. No. 1608 (C.A.) (QL) ("Heavyside")
at paragraph 10. More apposite to this case, the Tax Court of Canada has held
that the purpose of subsection 160(1) would be defeated where a transferor
allows a transferee to use the money to pay the debts of the transferor for the
purpose of preferring certain creditors over the CRA (Raphael
v. Canada 2000 D.T.C. 2434 (T.C.C.) at paragraph 19).
As will be explained below, given the purpose of subsection
160(1), the intention of the parties to defraud the CRA as a creditor can be of
relevance in gauging the adequacy of the consideration given. However, I do not
wish to be taken as suggesting as [sic] there must be an intention to
defraud the CRA in order for subsection 160(1) to apply. The provision can
apply to a transferee of property who has no intention to assist the primary
tax debtor to avoid the payment of tax: see Wannan v. Canada [2003]
F.C.J. No. 1693, 2003 FCA 423 at paragraph 3.
[13]
In our fact situation,
no evidence was adduced to dispute the fact that the transferor, 511, was
liable to pay tax under the ITA at the time that the transfers took
place. The appellant also admitted that she was in a common-law relationship
with the sole director and shareholder of 511, which made them related persons
under the ITA. On the issue of whether there was an actual transfer of
funds, the Federal Court of Appeal made it clear in Livingston (supra)
that the deposit of funds into another person's account constitutes a transfer
of property. Here is what was said at paragraph 21 of that decision:
The
deposit of funds into another person's account
constitutes a transfer of property. To make the point more emphatically, the
deposit of funds by Ms. Davies into the account of the respondent
permitted the respondent to withdraw those funds herself anytime. The property
transferred was the right to require the bank to release all the funds to the
respondent. The value of the right was the total value of the funds.
[14]
There is therefore no
doubt that depositing 511's cheques into the appellant's bank account
constituted a transfer of property. This therefore leaves the issue of whether
there was adequate consideration given at the time of the transfers.
[15]
I want to emphasize the
fact that both the appellant and Ronald Poirier testified with candour and that
their credibility is not at issue in this appeal. I have no reason to
disbelieve that the sole purpose of the entire exercise was to feed 511's ATM with
sufficient cash to accommodate its users and that the cheques issued to the
appellant during the period were so issued for that very purpose. I accept the
appellant's testimony that the cash obtained from the deposit of the cheques issued
was all deposited in 511's ATM and that these funds found their way back into
511's bank account within 24 hours. Exhibit A-1 is evidence of that movement of
funds into 511's account.
[16]
It is true that there
are no documents to show or corroborate the actual deposit of the funds in the
ATM, but I have no reason to disbelieve the appellant and Ronald Poirier's
explanation that the object of the exercise was to ensure 511 had sufficient
cash on weekends to feed the ATM. As 511 had no line of credit available to it,
they used the appellant's line of credit. I also have no reason to disbelieve
that all the money from the deposits found its way into the ATM and therefore
back into 511's bank account and that it happened that way because 511 had used
up its line of credit with one of its banks and there was no line of credit with
its new account at its other bank. Had the money from the cheques issued to the
appellant not found its way back into 511's bank account, that account would
have been substantially overdrawn. Considering 511's financial difficulties, I
do not believe 511 would otherwise have survived during the entire period. In
order to operate an ATM, one only needs to have a minimum amount of cash in the
machine as it is the same cash that circulates from the machine via the
processing centre into the account of the ATM owner and back into the machine.
The purpose of the exercise here was to give 511 access to cash on weekends, when
none was available to it. I cannot see how that exercise could produce the amount
of $84,499.89 that was assessed against the appellant, for it was no doubt always
the same money that was in circulation.
[17]
I am satisfied, on a
balance of probabilities, that a valid legal contract existed here between the
appellant and 511 in that the money being transferred to the appellant was to
be used solely for the benefit of 511 as it was deposited immediately or within
a very short time into 511's ATM. By depositing into 511's ATM the same amount
of money as she had received, the appellant was giving 511 a consideration equivalent
in value to that of the property transferred; in other words, the same amount
of money was being transferred back to 511. There was therefore full
consideration given by the appellant for the funds transferred by 511. In these
circumstances, I find that section 160 of the ITA has no application. The
appeal is allowed and the assessment vacated. The appellant is entitled to her
costs.
Signed this 20th day of August 2012.
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