Citation: 2007TCC309
Date: 20070525
Docket: 2006-586(IT)I
2006-588(GST)I
BETWEEN:
RAZIEH SHIRAFKAN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bowie
J.
[1] These two
appeals are brought from assessments made under section 160 of the Income
Tax Act (the ITA) and section 325 of the Excise Tax Act (the ETA).
The amounts assessed under the two Acts are, respectively, $5,654.75 and
$21,835.70. These are the amounts that are said to have been owing by the appellant’s
husband, Abdulvehab Kheari (the husband), on September 3, 2004 under
assessments made against him as a director of 632887 BC Ltd. (the company)
pursuant to sections 227.1 of the ITA and 323 of the ETA for
unremitted withholdings under the ITA
and unremitted gst, and interest, under the ETA of the company when it
ceased to operate. On that date the husband conveyed to the appellant all his
interest in their family residence at 1629
Burton Avenue, Victoria, BC (the
residence).
[2] Ms. Shirafkan
appeals from these assessments under this Court’s informal procedure. Her
counsel advanced the following grounds of appeal.
(i) The assessments against the
company, and therefore those against the husband as a director of it, were not
well-founded. Although none of those assessments were appealed, he argues that
the decision of the Federal Court of Appeal in Gaucher v. The Queen entitles this appellant to
challenge the correctness of all the underlying assessments;
(ii) The husband had transferred
all his equity in the residence to her in March 1998, before his liability
under the Acts arose, and he therefore held the legal title in trust for
her after that time;
(iii) The husband’s indebtedness to
the appellant on September 6, 2004 exceeded the value of his interest in the
property transferred to the appellant, and the discharge of the debt, or part
of it, was adequate consideration for the purposes of sections 160 and 325 of
the Acts.
In
view of the conclusion I have reached on the issue of consideration, it is not
necessary for me to deal with the appellant’s first
two grounds of appeal. Nor is it necessary that I reach any conclusion as to
the value in Canadian currency of the Iranian rial – a subject as to which the
evidence on both sides was most unsatisfactory.
[3] The history of
this matter begins with the marriage of the appellant and her husband in Iran in 1978.
The husband at that time bound himself under a written marriage contract to pay
to the appellant 1,000,000 Iranian rials and 750 Full Bahar Azadi gold coins in
consideration of the marriage. The appellant and her husband were later
divorced, and then remarried, entering into a second marriage contract in 1988.
The husband again bound himself to pay to the appellant 1,000,000 rials. Soon
after the second marriage, the couple immigrated to Canada as refugees and
settled in Victoria, BC. There is
no doubt that when they started life in Canada in 1988 the husband still owed the appellant at least
1,000,000 rials and 750 Azadi gold coins. Whether he owed an additional
1,000,000 rials under the second marriage contract is something that I do not
have to decide, in view of the conclusion that I have come to.
[4] The appellant’s
husband’s brother lived in Victoria at that time, and in 1992, shortly before he passed
away, he conveyed the residence to the husband, subject to a substantial
mortgage. The Appellant and her husband and children have lived there ever
since. In the years between 1992 and 1997 the husband was out of work for all
but a few months. During this difficult period, the appellant trained as a
hairdresser, and to make ends meet she frequently borrowed significant amounts
of money from her relatives in Iran. The evidence is unclear about the amount borrowed,
but it appears to have been about $12,000 to $15,000 per year for several
years. All this borrowed money, together with her earnings during this period,
went to support the family, and to make payments on the mortgages on the
residence.
[5] In 1994, the
appellant was injured in an automobile accident. She received a settlement of
her claim for injuries caused by the accident at the end of 1997. In the
meantime, her husband had refinanced the residence by way of a new mortgage
with the Scotia Mortgage Corporation for $150,000. The existing mortgage
remained on the title, the amount owing on it being about $14,000. The
appellant used the proceeds of her damage claim, some $48,000, to discharge
this latter mortgage, to pay a small bank loan, to make some repairs and
renovations to the residence, and to pay legal fees for her husband in relation
to charges that had been laid against him and were later withdrawn. While the
amounts in question are to some extent estimates, I am satisfied that the great
majority of the $48,000 settlement proceeds went either directly into the
equity in the residence, or into paying family expenses of various kinds. The
appellant spent less than $1,000 of this money on herself.
[6] In 1998, the
appellant and her two youngest children went to Iran for a visit of some four
months with her family. Shortly before they left the appellant and her husband
had one of many conversations about the ownership of the residence. There had
been some marital discord between them during these difficult years, and the
husband had on several occasions told the appellant that he would convey the
house to her. The appellant testified that during this conversation in March,
1998 her husband said to her specifically that “… the house is yours …”. I
accept the appellant’s evidence on this point, which was corroborated by her
husband, and by her daughter, who was present when the conversation took place.
No specific consideration passed at that time, and no conveyance took place,
but the context of the conversation was a discussion as to the amount of money
that the appellant had paid for repairs to the house, to discharge loans and
the mortgage on it, and to support the family and pay her husband’s legal fees
in connection with the charges that had been laid against him. The appellant regularly
reminded the appellant in the ensuing years that he was obliged to transfer the
title to the house to her, and he continuously neglected this obligation.
[7] During the years
between 1998 and 2002, the husband took several trips to Iran for several
months at a time, totaling in all about two years. Throughout this period the
appellant worked and looked after their children, paying all the expenses of
the family. In 2002, the husband and a Mr. Singh, who had earlier been his co‑accused,
decided to purchase a business known as Natalie’s Pizza. The appellant advanced
$7,000 to her husband for that purpose, thinking that he was buying the sole
ownership of the business. She also provided a line of credit to the business
for working capital. For the next two years, the appellant worked long hours at
Natalie’s Pizza, often accompanied by her elder daughter. Her husband spent at
least a year of that time in Iran. That was a particularly difficult period for the
appellant as she found Mr. Singh to be most uncooperative. He refused to give
her any financial information regarding the business, even though she had
provided much of the money to acquire and operate it. It therefore came as a
surprise to her that the Canada Revenue Agency (CRA) claimed substantial
arrears for payroll withholdings and for unpaid gst. Ultimately, Mr. Singh
removed most of the equipment from the restaurant, and the CRA took the
remainder, effectively closing down the business.
[8] On September 3,
2004, the husband conveyed the residence to the appellant. The consideration
stated on the deed was $220,000. It appears that he instructed a solicitor to
prepare and register the transfer without telling the appellant. His evidence
was that he had intended to transfer the legal title to the appellant ever
since the conversation of March 1998, but this was the first time that he had
the money necessary to pay the cost of doing so. I doubt that lack of funds was
the real reason for his delay; it seems to me more likely that there simply was
no urgency about it until the pizza business was failing and debt was piling
up. Nothing turns on that, however. The real issue in the case is whether there
was adequate consideration for the transfer.
[9] As no cash
changed hands on the transfer, the two important determinations that must be
made are, first, what was the value of the husband’s equity in the residence on
September 3, 2004, and second, what was the debt owing from the husband to the
wife on that date.
[10] It is pleaded in
the Amended Reply at paragraph 13 (q) that at the time of the transfer the
value of the residence was $314,000. That is the value at which it was assessed
by the British Columbia Assessment Authority for the purposes of municipal
taxation, with an effective date of July 1, 2004. It is certainly the highest
value for which there is any support to be found in the evidence. The exact
amount of the encumbrances on title on the date of the transfer is not
established in the evidence with certainty, but it was about $157,000, leaving
a total equity of the same amount.
[11] In my view, this
case is indistinguishable from Savoie v. The Queen. In that case, as
here, the husband and wife had both worked to maintain their home and raise
their family, commingling their earnings without maintaining any record of
their respective contributions to the family welfare or the specific assets in
question. Those assets were three parcels of land that were initially
registered in the name of the husband, legal title to which he transferred to his
wife at a time when he was indebted to the Crown under the ITA. Bowman
J., as he then was, held, on the authority of the Supreme Court of Canada’s
judgments in Pettkus v. Becker,
Palachik v. Kiss
and Sorochan v. Sorochan,
that the doctrine of resulting trust, or alternatively the doctrine of
constructive trust, entitled the transferor’s wife to a one‑half interest
in the property. There is evidence in this case of a common intention on the
part of the appellant and her husband that the residence should be hers, and it
is based on the contribution that she made to both the mortgage payments and
the other family expenses from three different sources — the money that she
obtained from her family in Iran, the proceeds of her personal injury claim,
and her wages during the many years that she supported the family by her sole
efforts while her husband was unemployed.
[12] Even if the
appellant’s interest in the residence were limited to one-half, on the basis
that they were each entitled to be considered to have made equal contribution
to the acquisition of the equity in the property and to the support of the
family unit, the husband’s equity in the residence would not have exceeded
$78,500. The unchallenged evidence of Jack Noble, a well-qualified expert in
the value of coins was that an Azadi gold coin was worth $122.79 on September
3, 2004. At the time title to the residence was transferred, then, 750 Azadi
gold coins were worth C$92,092.50.
[13] Counsel for the
respondent argues that as the transfer of title of the residence states that
the interest transferred is the fee simple, and that the consideration for the
transfer was $220,000.00, it is not open to conclude either that the husband’s
interest in the property was any less than the entire fee simple, or that there
was consideration in the form of the discharge of some or all of the husband’s
debt to the appellant. It is quite clear from the evidence that no
consideration passed between the parties to the transfer, however, and I am
satisfied as well that neither of them had any understanding of the legal
niceties of estates in real property. The transfer, I am sure, was prepared by
the husband’s solicitor and signed by his client without any serious thought
being given to the nature of the estate to be conveyed. It is certainly not
clear why the amount of $220,000.00 is shown as consideration, but it is some
evidence that the appellant’s husband believed that there was consideration
involved in the transaction; it is not clear what that could have been other
than an estimate, however inaccurate, of the extent of his debt to the
appellant under the marriage contract. The evidence before me as to the
equivalent of 1,000,000 rials in Canadian currency was quite unreliable. It may
well be that the parties considered $220,000.00 to be the outstanding debt
between them, taking into account the first, and perhaps the second, marriage
contract, and all the other amounts that the appellant had contributed over the
years. While I have no way of estimating the accuracy of that estimate, I do
accept it as evidence that the parties intended that the existing debt should
be extinguished, or at least reduced, by the transfer.
[14] My conclusion,
therefore, is that the appellant gave consideration for the transfer that was
at least equal to the value of the husband’s share of the equity in the
residence that he transferred to her. The appeals under the two Acts
will therefore be allowed and the assessments vacated. The appellant is
entitled to her costs under the Income Tax Act.
Signed at Ottawa, Canada, this 25th day of May, 2007.
“E.A. Bowie”
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