Citation: 2007TCC303
Date: 20070615
Docket: 2005-2484(IT)G
BETWEEN:
JEAN LIVINGSTON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AMENDED REASONS FOR JUDGMENT
Beaubier, J.
[1] This appeal
pursuant to the General Procedure was heard at Victoria, British Columbia on May 7,
2007. The Appellant testified and called Michele Davies to testify. The
Respondent called Andrew Dreher, a Resource and Complex Case Officer, who
attended to collection matters for Canada Revenue Agency (“CRA”) respecting
Ms. Davies, who owed about $80,000 in taxes and whose various corporations owed
over $700,000 in taxes and various remissions and interest due on account of
employees. As a consequence of the Davies file, he became CRA’s officer
respecting Ms. Livingston.
[2] The particulars in
dispute are set out in paragraphs 12 to 20 of the Reply to the Notice of
Appeal. They read:
12. The Minister assessed the Appellant under
subsection 160(1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.),
as amended (the “Act”), by Notice of Assessment number 34207, dated and
mailed on March 1, 2004 (the “Assessment”), for $36,650.82 in respect of
transfers of property from Davies to the Appellant during the period from
October 16, 2001 to April 28, 2003 (the “Period”).
13. The Appellant served a Notice of Objection
to the Assessment on May 28, 2004.
14. The Minister confirmed the Assessment by
Notification of Confirmation dated and mailed April 29, 2005.
15. In confirming the Assessment, the Minister
assumed the following facts:
a) the Appellant and Davies are friends;
b) at all material times, the Appellant and
Davies did not deal at arm’s length;
c) at all material times, the Appellant has resided
in Spillimacheen, B.C., in the Western Rocky Mountains;
d) prior to April 2003, Davies resided in
Port Alberni, B.C., on Vancouver Island;
e) in April 2003, Davies moved to
Spillimacheen;
f) on October 16, 2001, the Appellant opened
a bank account in her name only at the CIBC branch in Invermere, B.C. (the
“Account”);
g) during the Period, Davies was liable to
pay not less than $74,460.66, and as much as $80,341.67, under the Act
in respect of her 1995, 1996, 1997 and 1998 taxation years;
h) during the Period, monies totalling
$36,650.82 (the “Funds”) were deposited into the Account, as outlined in
the attached Schedule “A”;
i) prior to being deposited into the
Account, the Funds were the property of Davies;
j) Davies deposited some of the Funds into
the Account personally, and also directed other parties:
(i) to pay amounts owed to Davies to the
Appellant instead for the Appellant to deposit them into the Account, and
(ii) to deposit amounts owed to Davies
directly into the Account, rather than to pay it to her personally;
k) the Appellant opened the Account at
Davies’ request;
l) the Appellant’s purpose in opening the
Account was to enable Davies to place the Funds beyond the reach of creditors,
including the CRA;
m) the Appellant had control over the
disposition of the Funds upon their deposit into the Account;
n) the Appellant provided Davies with a debit
card to make withdrawals from the Account;
o) the Appellant signed cheques on the
Account for Davies’ use;
p) the Appellant did not give Davies any
consideration for the deposit of the Funds into the Account;
q) the Appellant and Davies did not conclude
any contractual agreement respecting the deposit of the Funds into the Account
or their use;
r) Davies declared bankruptcy on April 30,
2003; and
s) for purposes of her bankruptcy, Davies
denied that the Funds were held in trust for her and did not include the Funds
in her estate.
16. The assumption of fact outlined in
paragraph 15(q) above was first made by the Minister in confirming the
Assessment.
B. ISSUES TO BE DECIDED
17. The issue to be decided is whether the
Appellant is jointly and severally liable, together with Michele Davies, to pay
$36,650.82 pursuant to subsection 160(1) of the Act, in respect of the
deposit of the Funds into the Account.
C. STATUTORY PROVISIONS RELIED ON
18. He relies on subsections 160(1), 248(1) and
251(1) of the Act.
D. GROUNDS RELIED ON AND RELIEF SOUGHT
19. He respectfully submits that the deposits
of the Funds, which were the property of Davies, into the Account during the
Period, amounted to transfers of property with a fair market value of
$36,650.82 from Davies to the Appellant, for which the Appellant gave Davies no
consideration.
20. He further submits that the Appellant and
Davies did not deal at arm’s length with respect to those transfers. Therefore,
the Appellant is liable, under subsection 160(1) of the Act, to pay
$36,650.82 because, at the time of those transfers, Davies was liable to pay a
greater amount in respect of the 1995, 1996, 1997 and 1998 taxation years.
[3] Assumptions 15(a), (c)
– (j), (m), (n), (r) and (s) were not refuted by the evidence. Respecting the
remaining assumptions:
(b) Will be dealt with in what
follows.
(k) The Account was opened by
the Appellant after mutual discussions between the Appellant and Ms. Davies.
(l) The Court finds on the
evidence that this is correct. Ms. Livingston denied that the Account was
opened to put the funds beyond the reach of CRA. The Court does not believe
this. The two women had been friends for years before the account was opened.
Ms. Livingston admitted that she helped Ms. Davies with her income tax problems,
which were basically collection problems, at the time that the Account was
opened by Ms. Livingston. For these reasons, the Court finds that Ms.
Livingston had learned of Ms. Davies’ collection problems with CRA before the
Account was opened by Ms. Livingston. Moreover, the evidence is that the giant
majority of Ms. Davies’ indebtedness was to CRA. So, if hiding money from
creditors was discussed between them, it was about debts to CRA.
(o) The Appellant opened the
Account and immediately gave Ms. Davies blank signed cheques and a bank debit
card on the Account.
(p) Is wrong. The Appellant
gave Ms. Davies signed blank cheques and a bank debit card for the deposit and
removal of the funds in the Account. In fact, Ms. Davies was the only person
who used the Account; the Appellant never deposited into, or withdrew funds
from the Account or received a benefit from it.
(q) The deposit by Ms. Davies
of funds into Ms. Livingston’s name and the delivery by Ms. Livingston to Ms. Davies
of a bank debit card and signed blank cheques on the Account constitute an
exchange of consideration. As a result, there was a form of contractual agreement
between the parties.
[4] In Raphael v.
Canada, [2002] F.C.J. No. 82 at paragraph 4, the Federal Court of Appeal
confirmed Mogan, J.’s finding that for subsection 160(1) of the Income Tax
Act to be complied with, there must be:
1. A transfer of property.
2. Parties not dealing at
arm’s length.
3. No consideration or
inadequate consideration flowing from the transferor to the transferee.
4. A transferor who is liable
to pay tax under the Income Tax Act at that time.
[5] Respecting these
criteria:
1. Ms. Davies did transfer
the funds alleged into Ms. Livingston’s name.
4. Ms. Davies owed more than
that amount in tax to CRA at the times of the transfers, and the Appellant knew
that.
3. At all the times that Ms.
Davies made the transfers of each sum, Ms. Davies had the ability to take
each sum in full by using a signed blank cheque from the Appellant or by using
the bank debit card. Ms. Davies even got the bank account statements so she,
and not Ms. Livingston, was the person who knew what was in the Account,
although Ms. Livingston also had the power to find that out and to take
anything in the Account at any time. But, in any event, these findings
establish that at all times Ms. Livingston provided adequate consideration to
Ms. Davies for the deposit of these funds by Ms. Davies.
2. Based on the findings
respecting criteria 4 and 3 herein, the Court finds that Ms. Davies and Ms.
Livingston were not dealing at arm’s length respecting these transfers. Ms.
Davies was the directing mind in respect to all matters relating to the opening
and the operation of the Account.
[6] Appellant’s counsel
argued that the Appellant was a bare trustee of the funds in question. However,
the Court accepts the test of Waters’ Law of Trusts in Canada, 3rd
Edition, pages 342 and 343 in which Professor Waters writes:
…
F. Intention to Defraud Creditors and the
Right to Restitution
If a man transfers his property to another with the intention of
prejudicing his creditors, those creditors or his trustee in bankruptcy on
discovering the facts can have the transfer set aside under the fraudulent
conveyances legislation. However, the facts may not be discovered, and years
later when limitation periods have run or creditors are not at hand to object,
the transferor seeks to recover his property from the transferee. Can the
transferee successfully resist the admission of evidence profferred [sic]
by the transferor to show that a resulting trust was intended? The transferee argues
that the court will refuse its assistance to a man whose claim is essentially
the result of his past delict.
In such case, if the transferor is compelled to disclose and rely
upon his fraudulent intent, and his fraud achieved its object, it is clearly
established that the court will render him no assistance. No declaration will
be made in his favour. …
As stated therein, the Court will
not favour the transferor in such a case. But that text implies that any
transfer will then accrue to the transferee. In this case, both parties
conspired to prejudice CRA. Nonetheless, by virtue of the exchange of
consideration found in these reasons, the conditions for the application of
subsection 160(1) of the Income Tax Act were not met. The Appellant did
not obtain any benefit from the transfers by Ms. Davies.
[7] For these reasons,
the appeal is allowed.
[8] The Appellant is
awarded her party and party costs.
This Amended Judgment and
Amended Reasons for Judgment are issued in substitution for the Judgment and
Reasons for Judgment dated May 23, 2007.
Signed at Saskatoon,
Saskatchewan this 15th day of June, 2007.
"D.W. Beaubier"
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