Citation: 2009 TCC 431
Date: 20090909
Docket: 2007-4441(IT)G
BETWEEN:
BERNICE A. CAMPBELL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Campbell J.
[1]
The Appellant was
assessed the amount of $24,341.00 pursuant to section 160 of the Income
Tax Act (the “Act”) and section 20 of the Nova Scotia Income Tax
Act (the “NS Act”) in respect to a transfer of property from her
husband, Gerald Campbell, on October 8, 2002.
[2]
Initially, the
Appellant took the position that the conveyance of the property was not a
transfer within the meaning of section 160 of the Act because the
disposition did not result in a change of beneficial ownership. However, the
Appellant has conceded that there was in fact a transfer in light of the
decision in The Queen v. Livingston, 2008 DTC 6233, but argues
that Gerald Campbell had only a legal title to transfer which had a value of
nil. Therefore, in deciding the issue of whether the Appellant is liable to pay
$24,341.00 in respect to this property transfer, it is necessary to address the
sub‑issue of whether the Appellant’s spouse had a beneficial interest in
the property when he transferred it to the Appellant in 2002.
[3]
After the Appellant and
Gerald Campbell were married in 1979, they moved to Alberta.
In 1989 they returned to Nova
Scotia and eventually on
January 25, 1993 they purchased a condominium property (the “condo”) in Halifax. Title to the condo was registered in both names as
joint tenants. The Appellant testified that she initiated this purchase and
received the down payment of $10,000.00 as a gift from her mother. The
Appellant’s mother confirmed that she gifted not only the down payment of
$10,000.00 but also an additional amount of $1,000.00 to cover legal fees. A
mortgage with Scotia Mortgage Corporation was placed on the property on January
25, 1993. This mortgage was renegotiated on December 27, 2000 and both parties
remained as co-mortgagors until October 8, 2002.
[4]
The Appellant testified
that she has made all the mortgage payments on the condo initially from a joint
bank account held with Gerald Campbell. Mr. Campbell has had no signing
authority on this account since 2001. According to the Appellant, she paid not
only the mortgage payments but all of the other expenses associated with this
property. Mr. Campbell’s work is sporadic within the construction industry
while the Appellant has full time employment as an executive secretary with the
Nova Scotia Department of Community Services. The Appellant did state that her
husband contributed varying amounts between $100.00 and $600.00 once or twice
monthly and that he assisted with child care (although the Appellant’s mother,
Pearl Engram, did most of the babysitting for the Appellant), some household
chores and paid for some groceries and the power bill. Mr. Campbell
acknowledged that, although he was aware that he was named on the mortgage, he
did not make mortgage payments and was not fully aware of how the payments were
made. However, he confirmed that the Appellant paid for a joint life insurance
policy with respect to this mortgage until 2002 while the Appellant in her
testimony claimed that she was not aware of this insurance until her memory was
refreshed by documentation (Exhibit R‑1, Tab 10).
[5]
From the time of
purchase in January 1993 until the present time the condo has been occupied by
the Appellant, Mr. Campbell and their daughter as a family residence except for
periods of marital problems when the Appellant’s husband would leave the
residence. According to the evidence, Mr. Campbell left the residence in early
January 1993 for approximately five or six months. He returned to the residence
because he could no longer pay rent and continues to reside in the condo
because “… it’s better than sleeping on the street.” (Transcript, page 110).
[6]
On October 8, 2002, Mr.
Campbell executed a Warranty Deed (Exhibit A‑1, Tab 2) conveying his
interest in the property to the Appellant in consideration of one dollar “Because
we were going to separate, and she put all the money into it in the first place
…” (Transcript, page 110).
[7]
As of October 8,
2002 the fair market value (“FMV”) of the property was no less than
$106,000.00, subject to a mortgage balance of $57,316.83 with Scotia Mortgage
Corporation. At the time of the transfer the FMV of 50% of the equity in this
property totalled $24,341.58.
[8]
Until 2000, the
Appellant completed Mr. Campbell’s income tax returns. On cross-examination, he
agreed that he was probably first assessed for taxes around February 2001. The
aggregate of all amounts that he was liable to pay under the Act in
respect to the 1999, 2000, 2001 and 2002 taxation years was not less than
$45,287.51.
The Appellant’s Position:
[9]
The Appellant claims
that since the purchase of the property her husband’s only interest in the
condo was that of legal title but that he never had a beneficial interest or
equity of redemption. The Appellant testified that she has always assumed full
financial responsibility for the property including the initial down payment and
the subsequent mortgage payments. An assessment should not be made pursuant to
section 160 because it was only a legal title to the property that Gerald
Campbell released and conveyed to the Appellant by Warranty Deed in 2002. Since
nothing of value was conveyed to the Appellant and because the Appellant always
held the full beneficial interest in the property, the FMV of Gerald’s interest
did not exceed the FMV of the one dollar consideration given by the Appellant.
The Respondent’s Position:
[10]
The Respondent’s
argument is that the Appellant’s husband had both a legal and beneficial
interest in the condo at all material times. Because they are spouses of each
other, they were not dealing at arm’s length. When the property was transferred
to the Appellant in 2002, Gerald Campbell owed taxes under the Act with
the FMV of the property at transfer exceeding the consideration given by the
Appellant. Therefore the Appellant is liable to pay $24,341.00 pursuant to
section 160.
Provisions Relied Upon:
[11]
The parties relied upon
sections 160, 251 and subsection 248(1) of the Act together with section
20 of the NS Act and sections 3, 6 and 8 of the Matrimonial Property
Act. The relevant portions of section 160 provide:
160(1) Where a person has, on or after May 1, 1951, transferred property, either directly or indirectly, by means of a trust or by any other means whatever, to
(a) the person's spouse or common-law partner or a person who has since become the person's spouse or common-law partner,
(b) a person who was under 18 years of age, or
(c) a person with whom the person was not dealing at arm's length,
the following rules apply:
(d) the transferee and transferor are jointly and severally liable to pay a part of the transferor's tax under this Part for each taxation year equal to the amount by which the tax for the year is greater than it would have been if it were not for the operation of sections 74.1 to 75.1 of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, in respect of any income from, or gain from the disposition of, the property so transferred or property substituted therefor, and
(e) the transferee and transferor are jointly and severally liable to pay under this Act an amount equal to the lesser of
(i) the amount, if any, by which the fair market value of the property at the time it was transferred exceeds the fair market value at that time of the consideration given for the property, and
(ii) the total of all amounts each of which is an amount that the transferor is liable to pay under this Act in or in respect of the taxation year in which the property was transferred or any preceding taxation year,
but nothing in this subsection shall be deemed to limit the liability of the transferor under any other provision of this Act.
[12]
Section 251 states:
251(1) For the purposes of this Act,
(a) related persons shall be deemed
not to deal with each other at arm's length;
…
Definition of
"related persons"
251(2) For the
purpose of this Act, "related persons", or persons related to each
other, are
(a) individuals
connected by blood relationship, marriage or common-law partnership or
adoption;
…
[13]
Subsection 248(1)
provides the following definition of “property”:
"property" means property of any kind whatever whether real or personal or corporeal or incorporeal and, without restricting the generality of the foregoing, includes
(a) a right of any kind whatever, a share or a chose in action,
(b) unless a contrary intention is evident, money,
(c) a timber resource property, and
(d) the work in progress of a business that is a profession;
[14]
Subsections 3(1) and
6(1) and section 8 of the Matrimonial Property Act read as follows:
"matrimonial home" defined
3(1) In this Act, "matrimonial
home" means the dwelling and real property occupied by a person and that
person’s spouse as their family residence and in which either or both of them
have a property interest other than a leasehold interest.
…
Equal right of possession of matrimonial
home
6(1) A spouse is equally entitled to any
right of possession of the other spouse in a matrimonial home.
…
Disposition of matrimonial home
8(1) Neither spouse shall dispose of or
encumber any interest in a matrimonial home unless
(a) the other spouse consents by signing the
instrument of disposition or encumbrance, which consent shall not be
unreasonably withheld;
(b) the other spouse has released all rights
to the matrimonial home by a separation agreement or marriage contract;
(c) the proposed disposition or encumbrance
is authorized by court order or an order has been made releasing the property
as a matrimonial home; or
(d) the property is not designated as a
matrimonial home and an instrument designating another property as a
matrimonial home of the spouses is registered and not cancelled.
Disposition contrary to subsection (1)
(2) Where a spouse disposes of or
encumbers an interest in a matrimonial home contrary to subsection (1), the
transaction may be set aside by the other spouse upon an application to the
court unless the person holding the interest or encumbrance acquired it for
valuable consideration, in good faith and without notice that the property was
a matrimonial home.
[15]
Section 20 of the NS
Act provides:
Income not earned in Province
20 There may be deducted in computing an
individual's tax payable under this Part for a taxation year the amount
determined by the formula
A x B
where
A is the provincial percentage; and
B is the amount that the individual may
deduct for the taxation year under section 120.2 of the Federal Act for the
purpose of computing the individual's tax payable under Part I of the Federal
Act.
Analysis:
[16]
Although often
described as a draconian provision, section 160 is an important tax collection
tool under the Act. The purpose of the section is to prevent a taxpayer
from avoiding a tax liability by transferring property to certain individuals
or non‑arm’s length persons, thereby avoiding the tax debt, while still
possibly benefiting from the assets. In this appeal the Minister seeks to
invoke section 160 to prevent the tax debtor, Gerald Campbell, from
transferring assets to his spouse, the Appellant, in an attempt to shield the
property from tax collection. If successful, it makes the Appellant liable for
the tax liability owed in the year of transfer or any preceding year to the
extent that the FMV of the property transferred to the Appellant exceeds the
consideration received. It should be noted however that there is no requirement
that the transferor have an intention to avoid tax liability at the time of the
transfer [Montreuil et al. v. The Queen, 95 DTC 138].
[17]
In Wannan v. The
Queen, 2003 DTC 5715, the Federal Court of Appeal at paragraph 3 stated the
following:
[3] … There is no due diligence defence to the application
of section 160. It may apply to a transferee of property who has no intention
to assist the primary tax debtor to avoid the payment of tax. Indeed, it may
apply to a transferee who has no knowledge of the tax affairs of the primary
tax debtor. However, section 160 has been validly enacted as part of the law of
Canada. If
the Crown seeks to rely on section 160 in a particular case, it must be
permitted to do so if the statutory conditions are met.
[18]
There are four
conditions that must be satisfied before section 160 can be applied. According
to the decision in Livingston at paragraphs 17 to 19, the following
criteria will trigger the application of section 160:
[17] In light of the clear meaning of the words of subsection
160(1), the criteria to apply when considering subsection 160(1) are
self-evident:
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.
[18] 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 to him." See also Heavyside v.
Canada [97 DTC 5026] [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 DTC 2434 (T.C.C.) at
paragraph 19).
[19] … [G]iven 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 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 DTC
5715] 2003 FCA 423 at paragraph 3.
[19]
Three of these four
conditions are not in dispute in this appeal.
(A) Tax Liability – subparagraph 160(1)(e)(ii)
[20]
One of the Minister of
National Revenue’s (the “Minister”) assumptions was that the Appellant’s spouse
had a tax liability of $45,287.00 at the time of the transfer on
October 8, 2002. Although the Appellant testified that she was unaware of
her husband’s tax liability because she had ceased filing his tax returns in
the early 2000s, according to the decision in Wannan, the transferee
need not have knowledge of the tax affairs of the primary debtor in order to
trigger the application of section 160. Mr. Campbell’s tax liability was not in
dispute.
(B) Relationship between Transferor and
Transferee – paragraph 160(1)(a)
[21]
The definition of
“related persons” contained in subsection 251(2) includes individuals connected
by marriage or common-law partnership. Since related persons are deemed not to
be dealing with each other at arm’s length and the evidence supports that the
parties have been married since 1979, this requirement is also met.
(C) Consideration and FMV – subparagraph
160(1)(e)(i)
[22]
Pursuant to subparagraph
160(1)(e)(i), a transferee will be liable for the transferor’s tax liability to
the extent that the value of the property exceeds the value of the
consideration received for the property. The Minister assumed that Gerald
Campbell’s equity in the condo was $24,341.00 and that he transferred both his
legal and beneficial interest in the condo to the Appellant for the
consideration of one dollar. The Appellant did not dispute that the FMV of the
condo on October 8, 2002 was $106,000.00 or that the mortgage balance was
$57,316.00. However she maintained that the FMV of her husband’s interest in
the condo was nil and not $24,341.00 as the Respondent contends. Therefore, she
submits that her liability is nil pursuant to section 160 because the FMV of
her husband’s interest did not exceed the consideration of one dollar.
[23]
A determination of the
FMV of Gerald Campbell’s interest in the condo is dependent upon whether he had
only a legal title where the FMV of that interest will be nil or whether he had
both a legal and beneficial interest in the condo where the FMV of his interest
would then equal $24,341.00.
(D) Transfer of Property
[24]
The term “property” is
defined in subsection 248(1) of the Act. The condo which was conveyed to
the Appellant falls within the ambit of this definition as it includes real
property.
[25]
The term “transfer” is
not defined in the Act but numerous decisions have discussed this term.
Thorson J. in the oft cited case of Fasken v. Minister of National
Revenue, 49 DTC 491 at page 497, provided the following definition:
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. …
[26]
The recent decision of Livingston
established that the mere transfer of a legal title constitutes a transfer
under section 160. At paragraph 22, Sexton J. made the following comment:
[22] In addition, there is a transfer of property for the
purposes of section 160 even when beneficial ownership has not been
transferred. Subsection 160(1) applies to any transfer of property – “by means
of a trust or by any other means whatever". Thus, subsection 160(1)
categorizes a transfer to a trust as a transfer of property. Certainly, even
where the transferor is the beneficiary under the trust, nevertheless, legal
title has been transferred to the trustee. Obviously, this constitutes a
transfer of property for the purposes of subsection 160(1) which, after all, is
designed, inter alia, to prevent the transferor from
hiding his or her assets, including behind the veil of a trust, in order to
prevent the CRA from attaching the asset. Therefore it is unnecessary to
consider the respondent's argument that beneficial title to the funds remained
with Ms. Davies.
[27]
In light of the Livingston decision, the Appellant conceded that there was a
transfer pursuant to section 160 but contends that the decision did not address
the value of a legal title. The Appellant argues that since Gerald Campbell did
not have a beneficial interest in the property, nothing of value passed to the
Appellant in the transfer of the property because the value of the legal title
was nil. The Appellant submits that the authorities seem to state that the
value of a legal interest is nil but does not cite those authorities. It is
likely that the Appellant is referring to Justice Brulé’s decision in Gardner v. M.N.R., 88 DTC 1649, where at page 1651 he
concluded that the taxpayer’s interest in the property was nil because he held
only a legal title in the property.
Beneficial Interest v. Legal Title:
[28]
In response to the
Appellant’s argument that Gerald Campbell transferred only legal title which
had a value of nil, the Respondent contends that as a pre‑condition of
concluding that Gerald Campbell had no beneficial interest to convey, this
Court must find that he was acting as a prête-nom or holding his interest in
the condo in trust for the Appellant. The Respondent submits that there is no
evidence that would allow such a conclusion.
[29]
In the case of Gardner, Brulé J. concluded that the Appellant’s spouse
became a joint tenant to facilitate the acquisition of financing and therefore
the Appellant’s husband held legal title only as trustee. In Hurd v. The
Queen, [2001] 2 C.T.C. 2489, McArthur J. concluded that there was no
transfer of beneficial interest to an uncle because he was merely a trustee for
the taxpayer, having executed a valid declaration of trust.
[30]
In both Gardner and Hurd as well as the decision in Linke v.
The Queen, 94 DTC 1549, individuals were added to the title of the
property as joint tenants so that the appellants in those cases could acquire
mortgage financing. However, in the present appeal the Appellant did not
register her husband as a joint tenant of the condo to obtain financing because
she testified that she chose the property based solely on her salary. In
addition, she stated that there was no formal discussion respecting the
addition of his name to the deed at the time of the purchase or at least no
discussions that she could recall with her husband or with their lawyer who
completed the purchase. The Appellant claims that the evidence supports that
she was simply content to have title registered as it was generally done – that
is, by way of joint tenancy. The Appellant understood this to mean that her
husband was on title as a precautionary measure to avoid estate problems in the
event of her death so that her daughter would be assured a home.
[31]
While it is true that
the Appellant is a layperson with no legal background, she has worked her way
into the position of Executive Secretary and in addition had the benefit of
legal counsel at the time of purchase. The evidence showed that the Appellant’s
husband had both a drinking and gambling problem. If, at the time of purchase,
she was concerned about the welfare of her daughter as she testified, I have
difficulty accepting her evidence that she would not discuss this with the
solicitor at the time of purchase rather than proceed on what her own views were
of a “joint tenancy” proposition. I am reinforced in my perception of this
evidence by the fact that she refused to waive solicitor-client privilege and
did not call the lawyer to validate her testimony. This lends support to my
suspicion that if this lawyer had been called as a witness, he may have
contradicted her testimony.
[32]
The Respondent relied
on the cases of Miller v. M.N.R., 88 DTC 1488, Splinter v.
The Queen, [2001] 3 C.T.C. 2553 and Isaac v. The Queen,
[2006] G.S.T.C. 6, to demonstrate that the Appellant’s husband was not a
prête-nom holding the interest in the condo in trust for the Appellant. In the
decisions of both Miller and Splinter, title was not held as
joint tenants. In Miller, Taylor J. concluded that in light of a trust
agreement indicating that the transferor received only legal title to the
property, he could therefore not transfer what he did not own, namely a
beneficial interest.
[33]
In Splinter,
while there was no declaration of trust document that had been executed, there
was a finding that other documentary evidence supported that a trust
relationship existed so that the transferor held the property in trust only.
[34]
In Isaac, the
transferor was not a resident in the property at the time of transfer and, in
addition, documentation, including an executed power of attorney and a
separation agreement, indicated that the transferor did not have a beneficial
ownership.
[35]
Based on this
jurisprudence, the Respondent contends that there was no evidence, including
documentary evidence such as a declaration of trust, that the Appellant’s
husband was holding the property in trust for her. Although the Appellant did
not specifically address the prête-nom argument and did not argue that Gerald
Campbell was holding any interest in the property in trust for the Appellant, in
the oral submissions, Appellant’s counsel relied on the Saskatchewan Court of
Appeal decision in Anderson v. Hervieux, [1985] S.J. No. 29
(S.K.C.A.). In Anderson, the Court held that the Plaintiff, who
was residing in a common-law relationship, was entitled to full ownership of
the house upon separation based on a resulting trust because the Defendant made
no financial contribution and the Plaintiff had registered the property in
joint names to ensure that the equity would pass to her on his death. The Appellant
argued that these two factors of Anderson are
similar to the facts in the present appeal and lend support to the Appellant’s
position that only legal title was transferred but not the beneficial
ownership.
[36]
The Anderson decision does not involve a section 160 assessment.
It involves family law and estate trust principles. The parties in Anderson were separating while the parties in the present
appeal are still married and in fact continue to reside in the condo. There was
no evidence in Anderson of monetary contribution to the household
while Gerald Campbell made financial contributions in amounts between $100.00
and $600.00 once or twice monthly. Further, in Anderson there was no evidence of joint bank accounts or joint VISA statements
as in the present appeal. Although the Appellant testified that title to the
condo was registered in both names to protect their daughter, she affirmed that
she never had any formal discussions with her husband or the lawyer respecting
title and the consequences of registering the condo in both names.
[37]
In summary, there is
insufficient evidence to allow me to conclude that the Appellant’s husband was
a prête-nom, holding the interest in the condo in trust for the Appellant.
There is no documentary evidence to support such a proposition and the oral
testimony contains some inconsistencies.
Joint Tenancy
[38]
Joint tenancy is a form
of ownership in which the joint tenants have concurrent ownership and
possession of the same property. The Respondent argued that the most significant
factor favouring beneficial ownership is that the Appellant and her husband
acquired the condo and held title as joint tenants as opposed to tenants in
common. The Respondent also submits that a presumption exists, in the absence
of credible documentary evidence, that when parties own property as joint
tenants each will have both a legal and beneficial interest in the property.
Because the interest of each joint tenant is identical and the property cannot
be sold or mortgaged without the consent of both joint tenants, whatever the
Appellant had in law so did her husband.
[39]
The Appellant contends
that it was always her intention that her husband would hold legal title only.
However, there is no documentary or circumstantial evidence to support this
claim. The evidence supports that the Appellant’s husband was involved to some
extent with the purchase. He met with the realtor and viewed the condo before
purchasing it; he met with the lawyer and reviewed the documents and executed
all of the mortgage documentation (although few of these documents are before
me). In fact, he remained on the mortgage when it was renegotiated in 2000
until he came off in 2002. In the event of the Appellant’s death, her husband
had a right of survivorship in respect of the property and he would then have
become sole owner of the property. I am perplexed by the Appellant’s testimony
that she wanted to protect her daughter’s future by putting the property in
joint names in light of her testimony that her husband had a drinking and gambling
problem and that it was primarily her mother that provided child care when her
daughter was younger. The designation of the Appellant and her husband as joint
tenants and co-mortgagors clearly contradict the Appellant’s assertion that she
always intended that her husband would have only a legal title to the property.
[40]
Respondent has also
asked that I draw an adverse inference in respect to the fact that the lawyer
that represented the parties in the purchase in 1993 was not called as a
witness to confirm the Appellant’s intentions at the time of the purchase. The
Appellant submitted that this lawyer was on holidays and therefore not
available to appear at the hearing. In addition, the Appellant suggested that
the Respondent could have subpoenaed this lawyer.
[41]
Both the Appellant and
her husband met with the lawyer but the evidence was vague in respect to
exactly what was discussed at the time of the purchase. Consequently, the
testimony of this lawyer could have clarified the questions, concerns and explanations
that were discussed with the Appellant and her husband. His testimony had the
potential of validating the Appellant’s testimony respecting her intentions at
the time of purchase. The fact that the Appellant refused to waive
solicitor-client privilege leaves me wondering whether the lawyer might have
contradicted her testimony respecting the ramifications of joint tenancy if he
had been called as a witness. In respect to the Appellant’s suggestion that the
Respondent could have subpoenaed the lawyer, this becomes largely irrelevant
because the solicitor-client privilege was not waived. This lawyer would not
have been able to provide any relevant information without the Appellant’s
consent to revoke this privilege.
[42]
The Respondent contends
that even if the Appellant’s husband was not a joint tenant, he still had a
beneficial interest in the condo at the time of transfer. The Minister
interprets “beneficial ownership” to mean the entitlement to use or benefit
from a property, whether or not one has legal title (Respondent’s Submissions,
paragraph 40). The Respondent submitted several technical and interpretation
bulletins to show how Canada Revenue Agency (“CRA”) has come to interpret joint
ownership and beneficial ownership [Technical Interpretation 2000-0048195 –
Joint Tenancy – Beneficial Ownership; Interpretation – external 2007-025699IE5 -
Beneficial Ownership; Interpretation Bulletin IT-437R – Ownership of Property
(Principal Residence)].
The
Income Tax Act (Act) does not define the term "owned". In the
common law jurisdictions, two forms of property ownership are recognized --
legal and beneficial. Normally "legal ownership" exists when title is
transferred to, recorded in, registered in or otherwise carried in the name of
a person. Legal owners are generally entitled to enforce their ownership rights
against all other persons. By contrast, the term "beneficial
ownership" is used to describe the type of ownership of a person who is
entitled to the use and benefit of the property whether or not that person has
concurrent legal ownership. The determination of whether a person
beneficially owns a property is a question of fact that can only be determined
after a review of all the documents and the circumstances applicable to a
particular situation.
The primary
attributes of beneficial ownership include possession, use and risk. Therefore,
in determining whether a person has beneficial ownership in a property, one
should consider such factors as the right to possession, the right to collect
rents, the right to call for the mortgaging of the property, the right to
transfer title by sale or by will, the obligation to repair, the obligation to
pay property taxes and other relevant rights and obligations. […] (CRA
Views – external 2007-025699IE5 – Beneficial ownership, December 6, 2007).
(Emphasis added)
[43]
I agree with the
Respondent’s submissions that Gerald Campbell held a beneficial interest in the
condo because he exercised continued use and possession and bore the usual
financial risks associated with home ownership (Respondent’s Submissions,
paragraph 42). Because the Appellant’s husband was named as a joint tenant in
the deed and as a co-mortgagor on the financing documents, he was liable on an
equal footing with the Appellant for payment of property taxes, repairs, condo
fees and any outstanding mortgage balance. The property could not be sold or
encumbered by further mortgages without his consent. Although the evidence
supports that the Appellant made all of the mortgage payments, this alone will
not be a defence to an assessment pursuant to section 160 nor does it support
an argument that her husband did not have a beneficial interest. Bowman J. (as
he was then) at paragraph 25 of MacDougall v. The Queen, 98 DTC
2180, stated the following in this respect:
[25] Even if this case arose in a common law province I would
have reached the same conclusion. The mere fact that a husband makes all the
payments under a mortgage on a house that he and his wife own jointly does not
mean that she is not a beneficial owner of her one-half. One needs very
cogent evidence that a spouse who is shown as the legal owner of an interest in
property is not also the beneficial owner. …
(Emphasis added)
[44]
The Appellant stated
that the bank included her husband’s name on the mortgage to allow her to look
better in respect to the bottom line picture (Transcript, page 78). According
to her evidence, the bank took a “guesstimate” of her husband’s earnings
without proof and instead relied on her statement of earnings. I have difficulty
believing that a lending institution would rely on a “guestimate” and if, as
the Appellant contends, the condo was purchased and financed based on her
salary alone then there would be no need for her husband to remain on the
mortgage documents until October 8, 2002.
[45]
In the present appeal,
there is little evidence respecting the actual financial contribution of the
husband. His contribution varied between $100.00 and $600.00 either once
or twice monthly. There was no specific evidence as to how household expenses
and duties were divided. The account from which the mortgage payments were made
was a joint account. The Appellant claimed that her husband’s signing authority
was removed in 1994 but I was not provided with any record to support this. The
bank records could only confirm that it was removed in 2001. In addition, these
records do not cover the entire period for which the parties owned the condo.
[46]
The Appellant stated
that her mother gifted her $11,000.00 to cover the down payment plus legal fees
for the purchase and submitted that the testimony of the Appellant’s mother was
consistent with that of the Appellant in respect to how the funds were
transferred - that is, by way of a joint account. However, while the
Appellant’s mother did testify that she gifted $11,000.00 to the Appellant, she
did not corroborate the Appellant’s testimony respecting the transfer of the
funds. She initially did not recall how it was transferred and, when questioned
further, Pearl Engram recalled that she left the money in a TD account
from which her daughter, the Appellant, withdrew the funds even though it did
not appear that the Appellant was named on that account. In addition, there
were no bank statements, receipts or other financial records to support the
Appellant’s contention that this $11,000.00 amount was used as a down payment
on the condo. The Appellant’s testimony therefore has not been fully
corroborated here.
[47]
On a balance of
probabilities the Appellant’s financial contribution to the condo was greater
than that of her husband. However, as stated by Angers J. in Burns v. The
Queen, 2006 DTC 3383, this Court cannot invoke equitable remedies to conclude
that a transfer amounted to a conveyance of the interest he/she had in the home
at the time, when in fact the Appellant and her husband were living together in
the property and there is no apparent cause or need to remedy an economic
injustice.
[48]
The Respondent submits
that it is difficult to accept the Appellant’s contention that she did not
realize for numerous years that she and her husband shared a joint bank
account. While the evidence suggests that Gerald Campbell was removed from the
account by 1999, there is nothing in the evidence to support that he was
removed from the account before that date (Transcript, page 168-169). The
banking records are incomplete and do not cover the entire period that the
Appellant and her husband owned the condo. The Appellant’s testimony respecting
the origin of transactions of less than $500.00 was vague and few records of
any transactions were submitted.
[49]
Neither Appellant’s
counsel nor Respondent’s counsel questioned Gerald Campbell about his
income or where he was depositing his money if not into the joint Scotiabank
account. This certainly would have been beneficial in light of the fact that he
incurred a substantial tax debt throughout 1999 to 2002. This leads me to
believe that he had income although the Appellant has claimed that his work was
sporadic and that he could not be counted on for financial help. If he was not
depositing his money into a separate account and was drinking and gambling then
I am left to wonder why the Appellant allowed him on title to the condo as a
joint tenant, registered him as a co-mortgagor, maintained a joint account,
joint life insurance and joint credit cards. The Appellant’s evidence did not
address these issues. In fact, it is interesting to note that while the
Appellant removed her husband’s name from the title to the condo, the mortgage
and the joint bank account, she did not remove his name from the joint credit
cards even though she had to refinance the mortgage to pay them off. Her reason
for this was that she needed his signature to do so and did not want to
confront him about the credit cards. I am left wondering again why the Appellant
felt comfortable in approaching her husband about removal of his name in
respect to larger transactions that required his signature but did not want to
deal with him on the credit card debt. Also Mr. Campbell contradicted this
evidence as he did not believe that he shared joint credit cards with the
Appellant. It is also strange that Mr. Campbell testified that the Appellant
paid for joint life insurance while the Appellant claimed that she did not know
about this – why then would her husband know about the insurance if, as the
Appellant claimed, he was never involved in the mortgage because the Appellant
attended to all of the affairs of the condo? How could the Appellant be unaware that
she was paying for a joint life insurance while her husband had such knowledge?
[50]
The Appellant submits
that the inconsistencies in the testimony were “quibbling differences” only and
of minimal significance. However, I do believe that the evidence before me is
sufficient to conclude that Gerald did not have a beneficial interest. There
were a number of inconsistencies in the testimony and unanswered questions
concerning why Gerald was on the title to the condo and the mortgage, the
origin of various deposits to the account, how Gerald was involved in the
purchase, the lawyer’s absence and the Appellant’s refusal to waive solicitor‑client
privilege. In addition, supporting documentation was either lacking or
incomplete.
Nova Scotia Matrimonial Property Act (“MPA”)
[51]
The Respondent argued
that as a spouse under the MPA, that even if the Appellant’s husband had
not been a legal owner of the property, he would nevertheless be equally
entitled to any right of possession of the condo pursuant to his rights in law
as a spouse under the relevant provincial family law legislation. The
Respondent asserted that, pursuant to subsection 8(1) of the MPA, the
Appellant could not dispose of the condo or encumber it unless her husband
consented to or otherwise released his rights, for example by separation
agreement or court order. At all material times, he lived in the condo after
the transfer with the Appellant and their daughter.
[52]
The Appellant referred
to the decision in Yates v. The Queen, 2009 DTC 5062
where the Federal Court of Appeal stated that family obligations under
provincial legislation do not provide any exceptions to the operation of
section 160. The Court stated the following at paragraphs 41, 43, 54 and 70:
[41] […] As I have already indicated, subsection
160(1) does not contain any ambiguity. If there is a transfer within the
purview of the provision, then the transferee must satisfy the Court that he or
she provided consideration at fair market value. In view of the wording of
subsection 160(1), there is simply no basis for the position taken by the
Judge.
…
[43] To conclude, the appellant submits that she gave
consideration at fair market value for the sums received from her husband. I
see no evidence in the record to support that view. To make things perfectly
clear, let me say that in allowing her husband to live in the family residence,
the appellant did not provide consideration at fair market value. This is
simply another attempt by Mrs. Yates to benefit from the exception found at
subsection 160(4).
…
[54] There is nothing in subsection
160(1) that permits a court to excuse a spouse from liability where the
conditions of the provision are met; in fact, there is no mention of a family
law exception in this provision.
…
[70] There is some confusion in
jurisprudence since provincial legislation on family law regarding property,
family definition, common law partners and matrimonial homes varies from one
province to another. Nevertheless, subsection 160(1) should apply equally
everywhere in Canada without exception apart from those
specifically described in subsection 160(4).
(Emphasis added)
[53]
I agree with the
Appellant’s contention that family law concepts and principles should not play
any part when section 160 is being considered and this is particularly so in
light of the comments in the Yates decision. I note that the Appellant
placed considerable reliance on the decision in Anderson, which involved family law and estate trust principles, to support the
argument that her husband held only legal title to the condo. By the
Appellant’s own admission, Anderson should not therefore be considered given
that merging provincial legislation and matrimonial property principles with
section 160 is not encouraged according to the jurisprudence. Further, as noted
in counsel’s Reply Submissions, the concept of matrimonial rights does not
exist unless and until there is a separation. In Anderson the parties lived in a common‑law relationship but had
separated. In the present appeal the parties remain married and both continue
to reside in the condo. Consequently, I do not believe that the decision in Anderson should be given any weight in this appeal.
Section 20 of NS Act
[54]
Finally, the Reply
referenced section 20 of the NS Act, which provides a formula for the
calculation of income not earned within the Province of Nova Scotia. Neither the Appellant nor the Respondent
addressed this provision in their Submissions and I am unsure of how this
provision is relevant to the issues in this appeal. Since I received no
submissions from either counsel and because it is unclear why the Minister would
have resorted to this provision in assessing the Appellant, I do not believe
that it is necessary for me to comment on it.
[55]
The appeal is therefore
dismissed, with costs.
Signed at Summerside, Prince Edward Island, this 9th day of September 2009.
“Diane Campbell”
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