Citation: 2007TCC687
Date: 20071113
Docket: 2007-444(IT)I
BETWEEN:
COWCILLA KRISHNA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
O'Connor, J.
[1] The issue in this
appeal is described in the following paragraphs of the Reply to the Notice of
Appeal:
3. The Minister of National
Revenue (the “Minister”) assessed the Appellant pursuant to subsection 160(1)
of the Income Tax Act, R.S.C. 1985 (5th Supp.), c.1 (the “Act”)
by Notice of Assessment number 33531, dated July 7, 2005 for an amount of
$20,204.23.
4. The Appellant filed a
Notice of Objection dated September 30, 2005 in respect of the Notice
of Assessment.
5. The Minister confirmed
the Notice of Assessment dated July 7, 2005 by Notification of Confirmation
dated October 18, 2006.
6. In so assessing the
Appellant and in confirming the assessment, the Minister assumed the same
facts, as follows:
(a) 916054
Ontario Inc. (the “Corporation”) was incorporated in October, 1990 and operated
as Kris Auto Service;
(b) at all
material times, the Appellant and her spouse were the shareholders and
directors of the Corporation;
(c) the
Corporation purchased a building located at 51 Chauncey Ave., Etobicoke, Ontario in 1992 for $220,000
and sold the building in May, 2003 for $415,000;
(d) on September
10, 2003 the Appellant received the amount of $126,000 from the Corporation;
(e) the fair
market of the consideration given by the Appellant for the $126,000 she
received from the Corporation was Nil; and
(f) as at July
7, 2005, the Corporation was liable to pay federal tax, penalty and interest
amounts in respect of the 1992, 1993 and 1994 taxation years as follows:
|
|
Federal Tax
|
Penalty
|
Interest
|
Total
|
|
1992
|
$ Nil
|
$ Nil
|
$ 270.39
|
$ 270.39
|
|
1993
|
Nil
|
4,406.55
|
6,947.93
|
11,353.59
|
|
1994
|
3,108.94
|
434.75
|
5,036.56
|
8,580.25
|
|
Total
|
$3,108.94
|
$4,840.41
|
$12,254.88
|
$20,204.23
|
B. ISSUES TO
BE DECIDED
7. The issue is whether the
Minister properly assessed the Appellant under section 160 of the Act.
PROVISIONS, GROUNDS
RELIED ON AND RELIEF SOUGHT
8. He relies on section 160
and subsections 248(1), 251(1) and 251(2) of the Act.
9. He submits that the
Minister properly assessed the Appellant under the provisions of subsections
160(1) and 160(2) of the Act as:
(a) pursuant to
subsections 251(1) and 251(2) of the Act, the Appellant was not dealing
at arm’s length with the Corporation (the “Transferor”);
(b) the
Transferor transferred property in the amount of $126,000 to the Appellant. For
the purposes of this Act, money constitutes property;
(c) at the time
the property was transferred to the Appellant, the fair market value of the
property so transferred was $126,000;
(d) the Appellant
provided no consideration for the property transferred from the Transferor; and
(e) at the time
the Transferor transferred property to the Appellant, the Transferor was liable
to pay tax, penalty and interest amounting to $20,204.23.
10. He requests that the
appeal be dismissed.
[2] With respect to
paragraph 6(b) of the Reply, the Appellant denies this and states in the Notice
of Appeal that she was never in the business or ever part owner. Her testimony
at the hearing of this appeal is contradictory. At one point she stated “I own
a share of the business but I don’t’ know much about it.” Later, she says she
was not a shareholder. In any event it is clear that the Appellant’s husband
was the sole director of the Corporation and controlled the Corporation and
that the Corporation and the Appellant were not at arm’s length.
[3] With respect to the
Minister’s assumption in paragraph 6(e) of the Reply that the Appellant gave no
consideration for the $126,000, the Appellant states in the Notice of Appeal as
follows:
I don’t believe I owe any money
because the money that I received was to pay back my relatives that I had
borrowed money from for the business starting in 1984. My husband would ask me
for money when he was desperate to purchase machinery, tools and occasionally
pay bills.
Analysis
[4] The relevant
provisions of the Income Tax Act (“Act”), so far as material, are
as follows:
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 …
…
(c) a person with whom the person was not
dealing at arm’s length,
the following rules apply:
…
(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,
…
Arm’s length
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"
(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;
(b) a corporation and
(i) a person who controls the corporation, if it is
controlled by one person,
(ii) a person who is a member of a related group that
controls the corporation, or
(iii) any person related to a person described in
subparagraph 251(2)(b)(i) or 251(2)(b)(ii); and
[5] In simple terms,
these provisions, as applicable in this case, mean that if a person controls a
corporation and if the corporation transfers property, which term includes
money, to that person’s wife for no consideration, the wife is liable for any
taxes owed by the corporation at the time of the transfer.
[6] It is clear that in
the present case money in the form of a cheque in the amount of $126,000 was
transferred by the Corporation to the Appellant. It is also clear that the
Appellant’s husband, Krishnamurthy Krishna, controlled the Corporation and
consequently the Corporation and the Appellant are not dealing with each other
at arm’s length. Further, there was no satisfactory evidence that the Appellant
gave consideration for the transfer of $126,000 or that the Corporation owed
the Appellant any monies. It was also established that at the time of the
transfer, the Corporation owed $20,204.23 in taxes.
[7] In short, the
assumptions contained in the Reply to the Notice of Appeal have not been rebutted
nor destroyed, except perhaps that the Appellant may not have been a director
or shareholder of the Corporation. This is not material however because the
Appellant’s husband controlled the Corporation.
[8] Further, the
statement by the Appellant in the Notice of Appeal and in her evidence that she
was paying back relatives is not material in the present circumstances, the
only issue being whether she received a transfer of money from the Corporation
and not how she applied it.
[9] For all of the above
reasons I must conclude that the Minister has properly assessed the Appellant.
Consequently, the appeal is dismissed. There shall be no costs.
Signed at Ottawa,
Canada this 13th day of November, 2007.
"T. O'Connor"
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