Date: 20020409
Docket:
1999-3291-IT-G
BETWEEN:
LISE
CARON,
Appellant,
and
HER MAJESTY THE
QUEEN,
Respondent.
Reasonsfor
Judgment
P.R. Dussault,
J.T.C.C.
[1]
At issue here are six assessments made under section 160 of
the Income Tax Act, the notices of which are dated
October 19, 1998. The numbers of the notices and the amounts
assessed are as follows:
|
NUMBER
|
AMOUNT
|
|
13059
|
$80,434.46
|
|
13060
|
$17,850.90
|
|
15878
|
$
3,556.00
|
|
15879
|
$
9,814.83
|
|
15880
|
$
1,944.69
|
|
15881
|
$
3,227.97
|
[2]
In making the assessments, the Minister of National Revenue (the
"Minister") assumed the facts stated in
subparagraphs (a) to (x) of paragraph 11 of the Reply
to the Notice of Appeal. Those subparagraphs read as
follows:
[TRANSLATION]
(a)
the appellant is André Caron's wife;
(b)
on April 11, 1988, the appellant opened bank account
number 02-49238 in her own name at the Lévis
branch of the CIBC (branch 00495);
(c)
in 1992, André Caron transferred funds totalling
$80,434.46 to the appellant, without any consideration from her,
by depositing nine cheques made out to him in the
appellant's bank account at the Lévis branch of the
CIBC;
(d)
André Caron owed the Minister of National Revenue an
amount totalling $98,285.36 for his 1992 taxation
year;
(e)
the lesser of André Caron's tax liability for his
1992 taxation year and the amounts transferred to the appellant
during that year is $80,434.46;
(f)
in 1993, André Caron transferred funds totalling
$35,180.11 to the appellant, without any consideration from her,
by depositing 24 cheques made out to him in the
appellant's bank account at the Lévis branch of the
CIBC;
(g)
André Caron owed the Minister of National Revenue an
amount totalling $17,850.90 for his 1993 taxation
year;
(h)
the lesser of André Caron's tax liability for his
1993 taxation year and the amounts transferred to the appellant
during that year is $17,850.90;
(i)
in 1994, André Caron transferred funds totalling
$43,133.39 to the appellant, without any consideration from her,
by depositing 16 cheques made out to him in the
appellant's bank account at the Lévis branch of the
CIBC;
(j)
André Caron owed the Minister of National Revenue an
amount totalling $3,556.00 for his 1994 taxation year;
(k)
the lesser of André Caron's tax liability for his
1994 taxation year and the amounts transferred to the appellant
during that year is $3,556.00;
(l)
in 1995, André Caron transferred funds totalling
$15,322.46 to the appellant, without any consideration from her,
by depositing 23 cheques made out to him in the
appellant's bank account at the Lévis branch of the
CIBC;
(m)
André Caron owed the Minister of National Revenue an
amount totalling $9,814.83 for his 1995 taxation year;
(n)
the lesser of André Caron's tax liability for his
1995 taxation year and the amounts transferred to the appellant
during that year is $9,814.83;
(o)
in 1996, André Caron transferred funds totalling
$28,368.60 to the appellant, without any consideration from her,
by depositing 14 cheques made out to him in the
appellant's bank account at the Lévis branch of the
CIBC;
(p)
André Caron owed the Minister of National Revenue an
amount totalling $1,944.69 for his 1996 taxation year;
(q)
the lesser of André Caron's tax liability for his
1996 taxation year and the amounts transferred to the appellant
during that year is $1,944.69;
(r)
in 1997, André Caron transferred funds totalling
$5,710.13 to the appellant, without any consideration from her,
by depositing 7 cheques made out to him in the
appellant's bank account at the Lévis branch of the
CIBC;
(s)
André Caron owed the Minister of National Revenue an
amount totalling $3,227.97 for his 1997 taxation year;
(t)
the lesser of
André Caron's tax liability for his 1997 taxation
year and the amounts transferred to the appellant during that
year is $3,227.97;
(u)
André Caron deposited all the above-mentioned cheques
made out to himself in his spouse's account under a power of
attorney which he obtained on May 7, 1992, the day before
the very first such deposit he made;
(v)
André Caron had bank accounts in his own name in
which he could very well have deposited all the cheques he
deposited in his spouse's account at the Lévis branch
of the CIBC;
(w)
from January 22, 1998, André Caron and the
appellant had, inter alia, a joint account
(number 22-00813) at the Wilfrid-Hamel branch of
the CIBC (also called the Fleur de Lys branch), which was used to
pay family expenses;
(x)
although that account was a joint account, all the money
deposited in it came solely from
André Caron.
[3]
Subparagraphs (c), (e), (f), (h), (i), (k), (l), (n), (o),
(q), (r), (t) and (w) were denied as drafted. The appellant had
no knowledge of subparagraph (v), and the other
subparagraphs were admitted. As regards the subparagraphs that
were denied, it was admitted that the amounts referred to had
been deposited in the appellant's bank account. However,
counsel for the appellant contends on the one hand that the
amounts were not transferred to the appellant and, on the other,
that if it be determined that they were, the transfers were not
made without consideration.
[4]
The appellant and her spouse, André Caron,
testified.
[5]
The appellant's testimony and the documents filed in evidence
confirm the facts previously admitted concerning the fact that
the appellant had opened the bank account at the Lévis
branch of the Canadian Imperial Bank of Commerce
("CIBC") in 1988 and the power of attorney she had
given to her spouse, André Caron, in May 1992. The
appellant admitted that she had agreed to give him the power of
attorney at his request, without really knowing the reason behind
it, except that he was working at Lévis at that time. She
stated that she herself had made very little use of the account
which she said she had initially opened for the purposes of a
$5,000 loan to help her spouse. It was therefore mainly, if not
exclusively, her spouse who had conducted transactions involving
the account. The appellant had another personal account at the
Bank of Montreal and a joint account with her husband at another
branch of the CIBC, namely the Fleur de Lys branch, in
Québec. She said she did not know why her husband had
wanted to use her account and simply said that it was as though
it were his own account. To cover household expenses,
Mr. Caron gave her cheques drawn on that account. The
appellant stated that she did not know that the money deposited
in her account by her spouse could not be seized by his
creditors. However, she admitted that the family residence had
been transferred to her by Mr. Caron in 1991 because his
affairs were [TRANSLATION]
"a bit rocky" at the time and she wanted
to protect herself so that she would have something.
[6]
The appellant also admitted that she had been aware of her
spouse's investments in research and development projects,
that they had resulted in large income tax refunds for him, and
that the amounts received and deposited in her account by her
spouse had subsequently been claimed from him.
[7]
André Caron provided exceedingly nebulous
explanations regarding the use of the appellant's account at
the CIBC branch in Lévis under the power of attorney
obtained on May 7, 1992. In fact, a joint account had been
opened at the Fleur de Lys branch of the CIBC in Québec,
where he had been manager. However, as his real estate office was
located in Lévis near the CIBC branch where the appellant
had opened her personal account, he said he had decided to use
that account rather than open a new one. He testified that by so
doing it had been possible to avoid paying certain fees for
transfers to the joint account at the Fleur de Lys branch in
Québec. However, he said that this particular account was
nevertheless maintained until 1997 so that the necessary funds
for making payments on his line of credit could be transferred to
it. He said it was the manager of the Lévis branch who had
suggested that he use the appellant's account through a power
of attorney.
[8]
Mr. Caron also had a personal account at the Royal Bank. He
stated that that account had only been used to make repayments on
another line of credit granted for an investment in a shopping
centre. Thus, according to Mr. Caron, thanks to the power of
attorney obtained from the appellant, her account was used by him
for all his professional and personal transactions. He deposited
all his salary and commission cheques in that account.
[9]
The power of attorney which the appellant gave her spouse is
dated May 7, 1992. An amount of $13,478.45, that is, the
amount of a cheque dated April 29, 1992, representing a
Government of Canada tax refund, was deposited in that same
account by Mr. Caron on May 8, 1992.
[10]
In the succeeding months, Mr. Caron also deposited several
other large amounts representing provincial and federal tax
refunds in the appellant's account, as follows: on
July 22, 1992, an amount of $17,812.60 representing a Government of
Canada cheque dated July 15, 1992; on August 11, 1992,
an amount of $27,008.24 representing a Government of Quebec
cheque dated August 6, 1992; and on October 19, 1992,
an amount of $17,997.77 representing a Government of Canada
cheque dated October 9, 1992. Exhibit A-3
provides details concerning the amounts deposited by
Mr. Caron in the appellant's account from May 8,
1992, to March 4, 1997. As mentioned by Mr. Caron,
included as well are amounts representing salary and commissions
he received as a real estate agent during the same
years.
[11]
Regarding the meaning to be given to the word "transfer", counsel
for the appellant referred first to the Exchequer Court's
decision in Estate of David Fasken v. Minister of
National Revenue, 49 DTC 491, in which Thorson P.
commented as follows on the meaning of that term, at
page 497:
The word
"transfer" is not a term of art and has not a technical
meaning. It is not necessary to a transfer of property from a
husband to his wife that it should be made in any particular form
or that it should be made directly. All that is required is that
the husband should so deal with the property as to divest himself
of it and vest it in his wife, that is to say, pass the property
from himself to her. The means by which he accomplishes this
result, whether direct or circuitous, may properly be called a
transfer. The plain fact in the present case is that the property
to which Mrs. Fasken became entitled under the declaration of
trust, namely, the right to receive a portion of the interest on
the indebtedness, passed to her from her husband who had
previously owned the whole of the indebtedness out of which the
right to receive a specified portion of the interest on it was
carved. If David Fasken had conveyed this piece of property
directly to his wife by a deed such conveyance would clearly have
been a transfer. The fact that he brought about the same result
by indirect or circuitous means, such as the novation referred to
by counsel involving the intervention of trustees, cannot change
the essential character of the fact that he caused property which
had previously belonged to him to pass to his wife. In my
opinion, there was a transfer of property from David Fasken to
his wife within the meaning of the Act.
[12]
Counsel for the appellant essentially contended that there was no
transfer of the amounts in question to the appellant because
there could not have been any gift as Mr. Caron himself used
those amounts for his own purposes. Relying on article 782
of the Civil Code of Lower Canada and article 1822 of
the Civil Code of Quebec, depending on the years at issue,
he argued that a gift is void to the extent that the donor
retains ownership of the property that is the object of the gift.
These provisions, he maintained, entrench the principle of the
irrevocable nature of gifts and are based on the idea that one
cannot validly both give and retain, which prevents the donor
from taking back what he has given, even with the donee's
consent. Counsel for the appellant contended that the intention
of the parties must be considered. Thus, in his view,
Mr. Caron's depositing of amounts belonging to him in
the appellant's personal account reflected nothing more than
a contract of deposit between those individuals or a loan
agreement or an agreement for the use of the account, without any
transfer taking place.
[13]
In the alternative, counsel for the appellant contended that, if
it is held that a transfer of the amounts in question took place,
the appellant provided an equivalent consideration in the form of
the power of attorney whereby Mr. Caron could withdraw all
the amounts deposited.
[14]
Counsel for the respondent argued that the appellant's
spouse, André Caron, indeed transferred to the
appellant the amounts he deposited in her bank account and that
the power of attorney given by the appellant could not constitute
valid consideration in the circumstances. On this point, counsel
relied on the decisions in Thalheimer v. M.N.R.,
83 DTC 498, Sanger v. Canada, [1994] T.C.J.
No. 450; White v. Canada, [1995] T.C.J.
No. 86, Sinnott v. Canada, [1996] T.C.J.
No. 424, Moss v. Canada, [1999] T.C.J.
No. 891, and Raphael v. Canada,
[2000] T.C.J. No. 688. Those decisions confirm
that a deposit of money made by a person in a bank account
belonging to his spouse constitutes a transfer for the purposes
of section 160 of the Act.
[15]
In my view, André Caron's deposits of cheques
made out in his own name or of amounts belonging to him in the
appellant's bank account constitute transfers of property
within the meaning of section 160 of the Act since he
legally divested himself of ownership of those amounts in favour
of the appellant, the sole account holder. The power of attorney
obtained from the appellant and dated May 7, 1992
(Exhibit A-2) did not transfer ownership of those
amounts back to him, but simply gave him a mandate to administer
them for and on behalf of the appellant as her agent. Such a
power of attorney in no way implies that the appellant gave up
her ownership of the amounts deposited in her account since,
under the very terms of the power of attorney, all the powers set
out therein must be exercised for her and on her
behalf.
[16]
The appellant and Mr. Caron no doubt had their reasons for
acting as they did. However, beyond the explanations provided,
certain facts are nevertheless revealing and suggest that the
arrangement was decided upon for the purpose of enabling
Mr. Caron to shelter large amounts from his creditors,
including the federal and provincial governments. Mr. Caron,
who had been a bank manager, surely knew the effects that this
arrangement could have on his creditors' potential and
eventual rights with respect to the amounts thus deposited in the
appellant's account. I hasten to add, however, that the
presence or absence of any intention to shelter his property from
creditors in no way influences the application of
section 160 of the Act, as long as the conditions
stated in that provision are met.
[17]
The control that Mr. Caron, through the power of attorney,
ensured for himself over the amounts deposited in the
appellant's account did not give him back an ownership right
over those amounts which he had relinquished, but constituted a
mere power of administration on the appellant's behalf. That
does not represent a consideration as that term is to be
understood for the purposes of section 160 of the
Act.
[18]
As to the question whether the transfer of property made in the
circumstances constitutes a valid gift, I do not believe it is
relevant. Mr. Caron effectively and legally relinquished
ownership of the amounts of money by depositing them in the
appellant's bank account without receiving any consideration.
In my view, that was a transfer for no consideration contemplated
by section 160 of the Act, as interpreted by the
courts. This view is confirmed by the decisions to which counsel
for the respondent referred.
[19]
The point briefly raised by counsel for the appellant that
Mr. Caron's obligations respecting the payment of
household expenses represented valid consideration was not
brought up in the notice of appeal or in the Reply to the Notice
of Appeal, and no evidence was really adduced in that regard,
apart from a few general comments by Mr. Caron and the
appellant. I do not believe I have to rule on the
point.
[20]
In closing, I would like to draw attention to certain comments by
Linden J.A. of the Federal Court of Appeal in The
Queen v. Friedberg, 92 DTC 6031. Although the
context of that case bears no resemblance to the circumstances of
the instant case, Linden J.A.'s remarks are revealing as
regards the importance of arrangements entered into by taxpayers
and of their intentions in so doing. Linden J.A. wrote as
follows:
In tax law, form matters. A mere subjective intention, here as
elsewhere in the tax field, is not by itself sufficient to alter
the characterization of a transaction for tax purposes. If a
taxpayer arranges his affairs in certain formal ways, enormous
tax advantages can be obtained, even though the main reason for
these arrangements may be to save tax (see The Queen v.
Irving Oil 91 DTC 5106, per Mahoney, J.A.).
If a taxpayer fails to take the correct formal steps, however,
tax may have to be paid. If this were not so, Revenue Canada and
the courts would be engaged in endless exercises to determine the
true intentions behind certain transactions. Taxpayers and the
Crown would seek to restructure dealings after the fact so as to
take advantage of the tax law or to make taxpayers pay tax that
they might otherwise not have to pay. While evidence of intention
may be used by the Courts on occasion to clarify dealings, it is
rarely determinative. In sum, evidence of subjective intention
cannot be used to "correct" documents which clearly
point in a particular direction.
[21]
In view of the foregoing, the appeals are dismissed, with costs
to the respondent.
Signed at Ottawa, Canada, this
9th day of April 2002.
"P.R.
Dussault"
J.T.C.C.
Translation certified
true on this 7th day of June 2002.
[OFFICIAL ENGLISH
TRANSLATION]
[OFFICIAL ENGLISH TRANSLATION]
1999-3291(IT)G
BETWEEN:
LISE CARON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on December 11, 2001, at
Québec, Quebec, by
the Honourable Judge P.R. Dussault
Appearances
Counsel for the
Appellant:
Robert Marcotte
Counsel for the
Respondent:
Marie-Andrée Legault
JUDGMENT
The appeals from the assessments made under section 160 of
the Income Tax Act, the notices of which bear
numbers 13059, 13060, 15878, 15879, 15880 and 15881 and are
dated October 19, 1998, are dismissed, with costs to the
respondent, in accordance with the attached reasons for
judgment.
Signed at Ottawa, Canada, this 9th day of April
2002.
J.T.C.C.
Translation certified true
on this 7th day of June 2002.
Erich Klein, Revisor
Erich Klein, Revisor
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