Citation: 2006TCC387
Date: 20060710
Docket: 2003-421(IT)G
BETWEEN:
EILEEN PARKER,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Beaubier, J.
[1] This appeal pursuant to the General Procedure was heard at Saskatoon, Saskatchewan, on April 26 and June 16, 2006. The Appellant testified and called her husband, Reginald Parker ("Reg"), who was a lawyer practising in Saskatoonduring the years in question. Reg went bankrupt for the second time in 2001 and is still in bankruptcy. His trustee in bankruptcy, Jeffrey Pinder, B.Comm. also testified for the Appellant. From about 1980 until she retired in October 2004, the Appellant was employed as a purchasing clerk by the Saskatoon Public School Board. The couple has two children who were born in the early 1980s.
[2] The Respondent did not call any witnesses.
[3] The particulars in dispute are set out in paragraphs 7 to 13 inclusive of the Reply to the Notice of Appeal. They read:
7. In response to the Appellant's Notice of Objection to Assessment No. 17939, the Minister reassessed the Appellant by Notice of Reassessment dated October 30, 2002. The Minister reassessed the Appellant in respect of transfers of property from Reginald Parker to the Appellant in the amount of $53,406.18. By this reassessment, the Minister removed from the total assessment amounts in respect of business expenses for which Reginald Parker had used the Appellant's visa.
8. In so assessing and reassessing the Appellant, the Minister relied on the following assumptions of fact:
a) at all material times, the Appellant was married to Reginald Parker;
b) at all material times, the Appellant was employed full time as a purchasing clerk by the Public School Board;
c) at all material times, Reginald Parker was indebted to the Canada Customs and Revenue Agency on account of unpaid taxes in the following amounts:
|
Tax Year
|
Tax
|
Penalty/Interest
|
Total
|
|
1989
|
$13,888.24
|
$6,530.29
|
$20,418.53
|
|
1990
|
$25,235.50
|
$6,520.92
|
$31,756.42
|
|
1991
|
$18,275.94
|
$4,289.32
|
$22,565.26
|
|
1992
|
$16,787.96
|
$59.58
|
$16,847.54
|
|
1996
|
$13,011.56
|
$10,549.99
|
$23,561.55
|
|
1997
|
$25,142.31
|
$10,953.01
|
$36,095.32
|
|
1998
|
$17,086.40
|
$5,841.15
|
$22,927.55
|
|
1999
|
$20,520.84
|
$4,374.54
|
$24,895.38
|
|
2000
|
$6,936.92
|
$00.00
|
$6,936.92
|
|
Total
|
$156,885
|
$49,118.80
|
$206,004.47
|
d) in 1996, and throughout all material times, the Appellant was the sole owner of her home, located at 1114 Wilson Crescent, Saskatoon, Saskatchewan (the "Home");
e) during 1996, 1997, 1998, 1999 and 2000, Reginald Parker made mortgage payments on the home (the "Mortgage Payments"), as follows:
|
Year
|
Mortgage Payments
|
|
1996
|
$12,702.00
|
|
1997
|
$13,257.04
|
|
1998
|
$14,526.00
|
|
1999
|
$5,810.40
|
|
2000
|
$0.00
|
|
Total
|
$46,295.44
|
f) from 1996 to 2000, Reginald Parker made payments in respect of the Appellant's visa (the "Visa Payments") in the following amounts:
|
Year
|
Business Purchases
|
|
1996
|
$4,500.00
|
|
1997
|
$2,200.00
|
|
1998
|
$4,500.00
|
|
1999
|
$0.00
|
|
2000
|
$1,500.00
|
|
Total
|
$12,700.00
|
g) from 1996 to 2000, Reginald Parker made business purchases in the following amounts, using the Appellant's Visa:
|
Year
|
Business Purchases
|
|
1996
|
$380.45
|
|
1997
|
$2,200.00
|
|
1998
|
$4,233.85
|
|
1999
|
$0.00
|
|
2000
|
$1,500.00
|
|
Total
|
$8,314.30
|
h) from 1996 to 2000, Reginald Parker made the following payments to the Appellant (the "Cash Payments"):
|
Year
|
Amount of Payment
|
|
1996
|
$1,100.00
|
|
1997
|
$0.00
|
|
1998
|
$1,125.00
|
|
1999
|
$500.00
|
|
2000
|
$0.00
|
|
Total
|
$2,725.00
|
i) the Appellant provided no consideration to Reginald Parker in exchange for the payments made by Reginald Parker in respect of the mortgage on the Home;
j) the Appellant provided no consideration to Reginald Parker in exchange for the payments made on the Visa over and above the business expenses paid using the Visa;
k) the Appellant provided no consideration to Reginald Parker in exchange for the Cash Payments.
B. ISSUES TO BE DECIDED
9. The issues are whether:
a) in making the Mortgage Payments, the Visa payments in excess of business expenses and the Cash Payments, Reginald Parker transferred property to the Appellant;
b) the value of the property transferred exceeded the fair market value of consideration given by the Appellant; and
c) the transfers were made at a time when Reginald Parker had an outstanding tax liability for the year or prior tax years.
C. STATUTORY PROVISIONS RELIED ON
10. He relies on section 160 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended
D. GROUNDS RELIED ON AND RELIEF SOUGHT
11. He respectfully submits that in making the Mortgage Payments, the Visa payments in excess of business expenses and the Cash Payments, Reginald Parker transferred property to the Appellant.
12. He further submits that the value of the property transferred exceeded the fair market value of consideration given by the Appellant, which was nil.
13. He further submits that the transfers were made at a time when Reginald Parker had an outstanding tax liability for the year or prior tax years.
[4] Subparagraphs 8 a), b), c), d) and (h) of the assumptions in the Reply were admitted to be true. 8 e), f) and g) were not refuted except as they are corrected in paragraph [5] herein. The remaining subparagraphs are in dispute.
[5] With respect to the amount of the reassessment, the particulars are set forth as described in the Reply as follows:
Reassessed (para. 7) $53,406.18
Amounts assumed in paragraph 8
Mortgage payments (e) $46,295.44
Net Visa payments, less acknowledged business expenses (f)
$12,700.00
- 8,314.30
$4,385.70 $ 4,385.70
Removed from reassessment, subparagraph (g)
Cash payments (h) $ 2,725.00
Total $53,406.14
[6] Eileen Parker's husband, Reg, testified for a half-day. Because of his alleged deals with Eileen, it is necessary to recount his history. He was born on August 8, 1936, and married Eileen in 1964. They have two children aged 37 and 34. In 1964 Reg was a radio broadcaster in Winnipeg. They moved to Saskatoon in 1968 and Reg got a job as a broadcaster in Saskatoonwith a salary of $600 per month. In 1975 he attended university. Eileen obtained a job with Saskatoon's Public Board of Education as a purchasing clerk from which she has now retired. Reg testified that her salary was about $300 per month in 1970.
[7] In 1970 Reg and Eileen purchased their home at 1114 Wilson Crescent, Saskatoonin joint names. In 1975 Reg graduated from university and became a candidate for the New Democratic Party (NDP) to become a Member of Parliament. He lost. Reg was then hired by the NDP to be their public relations officer in Regina and he moved to Reginaand commuted to Saskatoon. In October, 1975 Reg purchased a house at 320 Royal Street in Reginaand borrowed the alleged purchase price of $42,000. In the fall of 1980 Reg quit this job and began attending the College of Law, Universityof Saskatchewan.
[8] Reg had lived in the basement of 320 Royal Street and rented the main floor from about the time he bought it. In about 1980 he was advised by a lawyer that he and Eileen could have separate tax-free principal residences if their houses were in separate names. On July 30, 1980 they transferred 1114 Wilson Crescentto Eileen's sole name and it has remained in her name to this time. Eileen did not pay Reg anything for this transfer. In his words, "It was just our house". He testified that Eileen was paying the mortgage payments on 1114 Wilson Crescent at that time and that tenants and rent payments at 320 Royal Street, Regina were sporadic. Reg made the payments on the Regina mortgage. Reg had a good job with Securitex while he attended law college and earned $2,000 per month in the summer and $600 per month in the school year. He graduated in law in 1983 and articled from 1983 to 1984 in Saskatoon. He purchased the law practice of the late David Newsham for $17,000 and after that practised law as a sole practitioner in Saskatoon. In December, 1984 Reg sold the Regina house for $42,000. They allege that there are no records now respecting this house.
[9] Reg testified that while he was in university Eileen paid the bills. But based on his alleged income at that time, his earnings would have equalled or surpassed Eileen's. Other than those times, and while he was in Regina, they testified that they had the following deal respecting allocation and payment of their living expenses from the time that they moved to Saskatoon and purchased a house in 1970:
Reg paid: the house mortgage payments
the car payments
Eileen paid: the utilities
the house insurance
They shared equally: groceries
yard expenses
the rest of their domestic expenses
[10] After Reg testified, Appellant's counsel moved to amend the Notice of Appeal to insert the claim that Reg was and is the beneficial owner of one-half of 1114 Wilson Crescent. An adjournment was granted so that both parties could amend their pleadings accordingly and the hearing resumed on June 16, 2006 in Saskatoonwhen Jeffrey Pinder and Eileen testified. The Amended Notice of Appeal alleges that Reg is the beneficial part owner of 1114 Wilson Crescent, Saskatoon. Jeffrey Pinder testified that Reg, a lawyer with a real estate practice, went into bankruptcy in 2001 for the second time and remains in bankruptcy. He did not, until this Hearing commenced in April, 2006, allege any interest in any capacity in the title of 1114 Wilson Crescent, despite his sworn statement of assets in the bankruptcy proceedings.
[11] Reg, with Eileen, assembled the records and tables in evidence and testified respecting the various expenses of the couple. In cross examination Reg admitted that from 1989 until 2000 he never paid income tax, except for the 1993-1995 years. The taxes owing are set out in assumption 8 c). Exhibit R-1, Tab 7, his 1997 income tax return, was reviewed. His 1997 income tax was slightly less than 40 percent of his take home income which was a net of a write-off of approximately $19,000 in bad debts. Reg went bankrupt for the first time in 1991 and was discharged on August 15, 1994; presumably his trustee in bankruptcy paid any income taxes Reg owed for that interval. Reg went bankrupt for the second time in 2001; essentially, Reg's bankruptcy debts are his income tax. Based upon the 1997 income tax return, for the nine years, 1989, 1990, 1991, 1992, 1996, 1997, 1998, 1999 and 2000, Reg took home approximately: 10/4 x $156,885 = $400,000 or about $40,000 per year in income. He reported his income on an accrual basis, but by writing-off his bad debts annually, this would have balanced out to about $40,000 cash income per year that Reg took home, including his unpaid income taxes, assuming that the taxes alleged owing reflect a correct amount of income.
[12] Reg tabulated the payouts that he says he could find. (It should be noted that the $40,000 calculation respecting Reg's take-home is also valid for the 1996 to 2000 years, which are the years in assumption.) Tab 41 of Exhibit A-1 is Reg's calculation of expenses for the years 1992 to 2001, from which the following figures are taken and averaged for 1996 to 2001 on an annual basis:
Household expenses $53,365
(including mortgage payments)
Household capital items 900
Vacations 1,850
Annual Total $56,115
[13] Eileen filed copies of her income tax returns for the years 1983, 1984, and 1985 (Exhibits A-4, A-5 and A-6). Noteworthy is the fact that she did not file copies of her income tax returns for any of the years 1989 to 2000 or since then. The returns filed indicate in, for example, 1985 that:
Employment Income $21,206.00
Family Allowance 719.21
Interest 501.41
Total $22,426.62
Less
Unemployment Insurance Premium $ 496.60
CPP 348.78
Registered Pension Plan Contribution 1,168.96
Income Tax Deducted 3,776.99
Union Dues 364.12
Subtotal $ 6,155.45
Less Income Tax Refund claimed - 2,027.51
Total $ 4,127.94
Net income after with holdings:
$22,426.62
- 4,127.94
Net $18,298.68
[14] Therefore, since all that was provided respecting Eileen was, in essence, the above and because Reg estimated Eileen's "gross" income to be about $18,000 per year, the Court calculates their combined take home income to be:
Reg $40,000
Eileen $18,000
Approximately $58,000
This establishes that Eileen didn't have the income required to pay out the amounts that Eileen and Reg testified that she paid out. It is noteworthy that neither Reg nor Eileen gave evidence with corroboration as to their incomes from 1989 through 2000.
[15] Some other discrepancies or gaps in the Parkers' evidence are that:
1. They transferred 1114 Wilson Crescent solely to Eileen on July 30, 1980 and claimed then that 320 Royal Streetin Regina was Reg's principal residence, although they began to claim in April, 2006 (when it suited their interests for the purpose of this appeal) that Reg has a beneficial interest in 1114 Wilson Crescentin his personal name.
2. Despite extensive documentation reaching back into the 1980's, there is no documentary evidence filed by them about the disposition of 320 Royal Street, Regina.
3. In his current, 2001, sworn bankruptcy documents, Reg did not claim any beneficial or other interest in 1114 Wilson Crescent; it was not then in his or Eileen's financial interest to do so.
4. Eileen testified that she paid large sums from her income in household expenses and to pay off her son's various loans and accounts, when the amount of her income that she verified in the documents in evidence make that impossible.
[16] Eileen also testified that she used her Visa, her Sears credit card and her Scotialine credit to run up debt, that in total accumulated, and, if she can be believed, is presently part of her Scotialine credit. She is now retired and has a very large indebtedness which she has run up in large credit amounts.
[17] The result is that on the limited corroborative evidence before the Court that verifies the numbers alleged in question, Eileen and Reg Parker have apparently been spending more than they testified and accumulating more debt by doing so.
[18] They are not believed when they testify that Reg was a beneficial owner of 1114 Wilson Crescent because:
1. Of the 320 Royal Street transaction.
2. Reg was a lawyer and no such interest was registered against the title of 1114 Wilson Crescent in the Land Titles Office under Saskatchewan's Torrens System.
3. Reg didn't report and allege any such interest in his 2001 bankruptcy, or in the pleadings of this case until April, 2006.
4. In the years since the transfer in 1980 Eileen has signed mortgage documents confirming her interest as sole owner of 1114 Wilson Crescent.
5. They did not provide the Court with evidence of their respective incomes for the years in question.
[19] Reg and Eileen testified that they didn't mix and mingle funds, but adhered to the payment regime described in paragraph [9]. However, despite the documents filed (many of which were manufactured by them or were for different years than the ones germane to this appeal), the chequing account and cheques confirming the distribution of financial responsibility alleged were not placed in evidence. Nor was verifying documentary evidence produced respecting the various money earned by the Appellant or Reg and allegedly paid for specific expenditures.
[20] The result is that there is no consistent verifiable documentary and systematic pattern established by the Appellant that can be traced by the Court for the years in question. Given Reg's (1) previous bankruptcy, (2) failures to pay income tax, (3) the fact that he was or is a lawyer, (4) the resulting lessons that the couple should have learned previously, and (5) the alleged financial transactions by a husband and wife, the Appellant must establish her appeal with clear corroborative documentary evidence, or credible corroborative testimony for all of the matters she alleges. She did not do this.
[21] As a result of these various failures and discrepancies, both Reg and Eileen Parker are found to be not credible witnesses respecting this appeal.
[22] In Ducharme v. Canada 2005 FCA 137, Rothstein J.A., for the entire panel, stated this at paragraphs 3 to 7:
[3] The Tax Court judge found that "Ms. Ducharme gave more consideration than she got" and he allowed her appeal. While I agree with the judge that the appeal to the Tax Court should have been allowed, I do so for different reasons and I should not be taken as agreeing with his approach to the matter.
[4] Almost all of the amount in issue involved five and a half years of mortgage payments of approximately $500 per month. I will assume, without deciding, that the entirety of the mortgage payments were transferred to Ms. Ducharme by Mr. Vienneau as that assumption is most favourable to the Minister. Over the relevant period of time, Mr. Vienneau was either living in the mortgaged premises or, when he was away at work, had access to the premises at any time he wanted. The Tax Court judge found as a fact that at the time of the subject mortgage payments "rent for an equivalent (and apparently, average) house for the family in Fort St. John ranged between $1,200 and $1,500 per month" (at paragraph 6). The amounts paid by Mr. Vienneau were less than half of these monthly rentals.
[5] It is a reasonable inference to draw from these facts that Ms. Ducharme gave to Mr. Vienneau the availability and use of her house in consideration for his payments on the mortgage. The amounts paid by Mr. Vienneau were tantamount to rent. The amounts paid were well under what appeared to be the fair market rental value of Ms. Ducharme's house and it cannot reasonably be said that the "rent" paid by Mr. Vienneau by way of making monthly mortgage payments on Ms. Ducharme's mortgage exceeded the fair market value of the consideration given by Ms. Ducharme to Mr. Vienneau.
[6] Identifying the amounts paid by Mr. Vienneau as rent is not a re-characterization of the legal effect of transactions. It is simply a way of explaining that Mr. Vienneau received consideration equivalent to or greater than the amounts he transferred to Ms. Ducharme.
[7] In view of this conclusion, it is not necessary to address Ms. Ducharme's other arguments based on valuing domestic services or "domestic obligations" of spouses.
[23] The Court rejects the Appellant's proposal that Reg Parker had an interest in 1114 Wilson Crescent. Moreover, the Appellant did not establish equivalent rental values comparable to 1114 Wilson Crescent as occurred in Ducharme. Nor did the Appellant prove her income and the income of Reg Parker for the years 1996 to 2000 inclusive. Indeed the evidence for other years respecting Eileen and the lack of evidence for both Eileen's and Reg's take home income for the years 1996 to 2000 inclusive makes the couple's failure stand out. The Court's own extrapolations contained in this Judgment have no direct evidential basis for the years in question respecting the actual take home pay for each year. The onus was on the Appellant to provide such direct evidence to the Court.
[24] As a result of these findings, the evidence is that Eileen paid out money and charged up credit from which Reg benefited, so that Eileen provided consideration to Reg. But Reg paid out at least twice as much as Eileen, insofar as any figures can be extrapolated from what evidence was provided. That evidence was not corroborated or even particularized for the years in question.
[25] The Court finds that the mortgage payments, Visa payments or cash payments in dispute constituted property which Reg transferred to Eileen in excess of anything that Eileen transferred to Reg. It exceeded the fair market value of consideration given by Eileen to Reg. Moreover, these transfers were made from Reg to Eileen when Reg Parker had an outstanding tax liability for the year or prior years.
[26] The appeal is dismissed. The Respondent is awarded its taxable costs respecting this appeal.
Signed at Kelowna, British Columbia, this 10th day of July, 2006.
"D.W. Beaubier"
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